Chandragiri Construction Company vs The Chief Engineer, P.W.d. Water Resources Organisation, Chennai Region and Others

S. Nagamuthu, J.—Though the miscellaneous petitions are listed today, by consent of both sides, the writ petitions are taken up for final

disposal.

The managing partner of the partnership firm, M/s. Chandragiri Construction Company, has filed both the writ petitions representing the said

firm. The petitioner is a registered state level contractor with the Public Works Department of the Government of Tamil Nadu and entitled to do

works worth more than Rs. 7500 lakhs. The first respondent called for eligible tenders in respect of the work of ""Formation of a Reservoir with

allied component works across Kamandalar near Shenbagathope village in Polur Taluk of Thiruvannamalai District"", with a sanctioned estimate

value of Rs. 23.47 crores as early as in 1996-1997. In that process, the petitioner''s tender was accepted and a contract was entered into between

the first respondent and petitioner on 24.08.2001.

It is stated by the petitioner that owing to additional items of work as well as additional quantities, a revised estimate for a sum of Rs. 34 crores

was sanctioned by the first respondent which was later on increased to Rs. 35.71 crores. It is further stated that due to non availability of good

quality of sand from the quarry specified in the agreement as the source of procurement, the petitioner had to find out the source of sand that could

provide good quality sand and sizable quantities to meet out the requirement for the project. Ultimately, such quantity of good sand was found out

in the sand quarry at Cheyyar River near Okoor Village in Polur Taluk which is at distance of 40 kilo meters from the Shenbagathope Reservoir

Project. For taking sand from the said quarry, necessary sanction was also obtained by the petitioner from the District Collector, Thiruvannamalai.

For procuring sand from the said quarry and to transport the same to a distance of 40 kilo meters, the petitioner had to incur an additional

expenditure. According to the petitioner, he is entitled for a sum of Rs. 470/- per cubic meter of sand inclusive of its handling charges, cost of sand

and Seniorage payable at quarry and the other incidentals incurred thereon for the quantity of about 65000 cubic meters or for the quantity as per

the actuals reflected in the measurement books maintained by the Department. The petitioner has completed the work in all respects despite of all

the hurdles. But the respondents have settled only 95% of the bills and 5% of balance which may work out to Rs. 110 lakhs is due from the

department.

Claiming the above said amount under various heads, the petitioner caused a notice on the first respondent on 14.11.2005 thereby making a

demand for Rs. 3.5 crores approximately and also prayed for appointment of an Arbitrator to decide the dispute between the parties as per the

contract. Admittedly, the first respondent sent a reply on 27.01.2006 thereby refusing to appoint an Arbitrator. Thereafter, the petitioner filed an

application u/s 11 of the Arbitration and Conciliation Act, 1996 before this Court, praying for appointment of sole Arbitrator to decide the issue.

The said application came to be dismissed on 30.03.2007 as not maintainable.

While so, according to the petitioner, the second respondent issued a show cause notice vide letter No. DO.2/F.11(A)/2005/09M/dated

03.03.2006 calling upon the petitioner to repay a sum of Rs. 257.25 lakhs on the ground that in respect of the payments made there was an

objection from the Accountant General stating that the said amount had been paid in excess. The petitioner was further called upon to pay the said

sum within 15 days from the date of such notice.

Challenging the above show cause notice dated 03.03.2006 issued by the second respondent, the petitioner has filed W.P. No. 8450 of 2006.

Subsequently, seeking for a writ of mandamus, to direct the second respondent to pay a sum of Rs. 2,37,00,000/-, the petitioner has filed W.P.

No. 31909 of 2007.

Heard Mr. R. Krishnamoorthy, learned Senior counsel appearing for the petitioner in both the writ petitions and the learned Additional

Government Pleader Mr. Arun appearing for the respondents.

Since the disputes in both the writ petitions emanate from the terms and conditions of the contract dated 24.08.2001, it is necessary to look into

the relevant clauses in the said agreement. Clause 35 of the agreement, which deals with settlement of disputes is as follows:

SETTLEMENT OF DISPUTES:

In case of any dispute or difference between the parties to the contract either during the progress or with in the 3 months of the date of the

completion of the works or after the determination abandonment or breach of the contract, or as to any matter or thing arising there under except

as to the matters left to the sole discretion of the Executive Engineer under Clauses 18, 20, 25.3, 27,32, 34, 36 and 37 of the ""General Conditions

of Contract"" or as to the with holding by the Executive Engineer or payment of any bill to which the contractor may claim to be entitled, the either

party shall forth with give to the other notice of such dispute or difference and such dispute or difference shall be and is hereby referred to the

arbitration of the superintending Engineer, PWD, WRO., Palar basin Circle, Chennai (hereinafter called the Arbitration) in cases where the value of

claim is less than and upto Rs. 50,000/-. In cases where the value of the claim is more than Rs. 50,000/- the parties will seek remedy through the

competent civil court.

Subject as aforesaid to the provisions of the Arbitration Act 1940, or any statutory modification or re-enactment thereof and the rules made there

under and for the time being in force shall apply to the Arbitration proceedings under this clause.

Upon every and any such references, the costs of and incidental to the reference and award respectively shall be in the discretion of the Arbitrator

subject to the conditions that the amount of such costs to be awarded to either party shall not, in respect of a monetary claim exceed the

percentage set out below of any such award irrespective of the actual fees, costs and expenses incurred by either party; provided that where a

monetary claim is disallowed in full, the said percentage shall be calculated on the amount of the claim. The Arbitrator may determine the amount of

the costs to be awarded or direct the same to be taxed as between solicitor and client or as party and party and shall direct by whom and to whom

in what manner the same shall be borne and paid.

The fees for arbitration shall be levied, based on the value of claims referred to for arbitration. The fess shall be calculated at 5% of the first Rs.

10,000/- at 3% on the next Rs. 40,000/-.

Provided that the Government shall not be liable to any claim in respect of any such dispute or difference until the liability and the amount thereof

shall have been referred to and decided by the Arbitrator.

The Department may make payment to the contractors according to the arbitration award, as soon as the award is passed, when neither party

object to the award and without obtaining a degree in the Court of Law.

Though initially arguments and counter arguments were advanced as to whether, as per the above clause, the disputes involved in these writ

petitions are liable to be referred to an Arbitrator, later on the learned Counsel for both parties agreed that these disputes cannot be referred to

Arbitrator as per Clause 35 of the agreement since the value of the claim made in both the writ petitions are more than Rs. 50,000/-.

In cases where the value of the claim is more than Rs. 50,000/-, the parties will seek remedy through the competent Civil Court. Relying on

this clause in the agreement, the learned Additional Government Pleader would submit that in respect of the claim for Rs. 2.37 crores made in

W.P. No. 31909 of 2007, it is for the petitioner to work out his remedies through a competent Civil Court and so, according to him, these writ

petitions are not maintainable.

But the learned Senior Counsel appearing for the petitioner would rely on the judgment of the Hon''ble Supreme Court in ABL International

Ltd. and Another Vs. Export Credit Guarantee Corporation of India Ltd. and Others, to submit that a writ petition involving a consequential relief

of monetary claim is maintainable. Therefore, according to the learned Senior Counsel, though there are certain disputed questions of fact, the writ

petition in W.P. No. 31909 of 2007, where the petitioner has made a monetary claim is maintainable.

In paragraph Nos. 27 and 28 of the said judgment (cited supra) the Hon''ble Supreme Court has held as follows:

From the above discussion of ours, the following legal principles emerge as to the maintainability of a writ petition.:

(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.

(b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all

cases as a matter of rule.

(c) A writ petition involving a consequential relief of monetary claim is also maintainable.

However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court

should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by

any other provisions of the Constitution. The High court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ

petition. The court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corporation v. Registrar of Trade

Marks.) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other

available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of

Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction.

In this case it is seriously disputed that the respondents are not liable to pay any amount to the petitioner and instead, the petitioner alone has to

repay the amount as per the Impugned order in W.P. No. 8450 of 2006. Considering the huge amount involved in the claims made by the

respective parties and also considering the nature of the disputes actually raised by the parties, though the Hon''ble Supreme Court in the above

said judgement has held that merely because some disputed questions of fact arise for consideration, the same cannot be a ground to refuse to

entertain a writ petition in all cases as a matter of rule, in my considered opinion, the said disputed questions of fact arising for consideration in both

these writ petitions cannot be adjudicated upon as they can be resolved only on evidence to be let in by the parties. Even in the said judgment, the

Hon''ble Supreme Court has only held that refusal to entertain a writ petition should not be a matter of rule simply because more disputed questions

of fact arise for consideration. In this case as I have already held the disputed questions are not only very serious in nature but also complicated.

Therefore, in my considered opinion the writ petition in W.P. No. 31909 of 2007 is not sustainable.

In Noble Resources Ltd. Vs. State of Orissa and Another, , while dealing with the scope of Judicial review in respect of contractual matters

after referring to various earlier judgments of the Hon''ble Supreme Court including ABL International Ltd. v. Ezport Credit Guarantee

Corporation of India Ltd., (cited supra) the Hon''ble Supreme Court has held as follows:

Contractual matters are, thus, not beyond the realm of judicial review. Its application may, however, be limited.

Although the terms of the invitation to tender may not be open to judicial scrutiny, but the courts can scrutinise the award of contract by the

Government or its agencies in exercise of their power of judicial review to prevent arbitrariness of favouritism. (See Directorate of Education v.

Educomp Datamatics Ltd.) However, the court may refuse to exercise its jurisdiction, if it does not involve any public interest.

Although the scope of judicial review or the development of law in this field has been noticed hereinbefore particularly in the light of the

decision of this Court in ABL International Ltd. each case, however, must be decided on its own facts. Public interest as noticed hereinbefore, may

be one of the factors to exercise the power of judicial review. In a case where a public law wlement is involved, judicial review may be

permissible. (Binny Ltd. v. V. Sadasivan and G.B. Mahajan v. Jalgaon Municipal Council)

In State of U.P. v. Johri Mal it was held:

It is well settled that while exercising the power of judicial review the court is more concerned with the decision making process than the merit

of the decision itself. In doing so, it is often argued by the defender of an impugned decision that the court is not competent to exercise its power

when there are serious disputed question of facts; when the decision of the Tribunal or the decision of the fact-finding body or the arbitrator is

given finality by the statue which governs a given situation or which, by nature of the activity, the decision-maker''s opinion on facts is final. But

while examining and scrutinising the decision making process it becomes inevitable to also appreciate the facts of a given case as otherwise the

decision cannot be tested under the grounds of illegality, irrationality or procedural impropriety. How far the court of judicial review can

reappreciate the findings of facts depends on the ground of judicial review. For example, if a decision is challenged as irrational, it would be well-

nigh impossible to record a finding whether a decision is rational or irrational without first evaluating the facts of the case and coming to a plausible

conclusion and then testing the decision of the authority on the touchstone of the tests laid down by the court with special reference to a given case.

This position is well settled in the Indian Administrative law. Therefore, to a limited extent of scrutinising the decision-making process, it is always

open to the court to review the evaluation of facts by the decision-maker.

Another field where judicial review is permissible would be when mala fide or ulterior motive is attributed. In Asis Foundation and

Construction Ltd. v. Trafalgar House Construction (I) Ltd. This Court held: (SCC p.746, para 9)

We are of the considered opinion that it was not within the permissible limits of interference for a court of law, particularly when there has been no

allegation of malice or ulterior motive and particularly when the court has not found any mala fides or favouritism in the grant. It was further held:

(SCC p.746, para 10)

Therefore, though the principle of judicial review cannot be denied so far as exercise of contractual powers of government bodies are

concerned, but it is intended to prevent arbitrariness or favouritism and it is exercised in the larger public interest or if it is brought to the notice of

the court that in the matter of award of a contract, power has been exercised for any collateral purpose. But on examining the facts and

circumstances of the present case and on going through the records we are of the considered opinion that none of the criteria has been satisfied

justifying Court''s interference in the grant of contract in favour of the appellant.

Having regard to the aforesaid legal principles, if the disputes in both the writ petitions are considered, in my considered opinion, there is no

public interest at all involved these claims. As held by the Hon''ble Supreme Court if public interest is involved then this Court can have judicial

review of the disputes. Since in the cases on hand, there is no element of public interest involved at all, these writ petitions are not maintainable.

It is settled law, that even in respect of contractual matters involving the State instrumentalities, though public interest is not involved, still, if any

action of the State suffers from arbitrariness or favouritism, the said action can be subjected to judicial review under Article 226 of the constitution

of India. In the present case in W.P. No. 31909 of 2007, so far, in respect of the claims made by the petitioner for additional sanction of amount

to the tune of 3.5 crores, there has been no decision taken by the Government and thus there is no order available so as to review the same on the

ground of arbitrariness or favourtism.

In respect of the Impugned order in W.P. No. 8450 of 2006, on examination, I am convinced that the same suffers from arbitrariness and so

this Court should have judicial review of the said order. Admittedly before passing of the impugned order, no opportunity whatsoever was given to

the petitioner to make his submissions. The impugned order has been made solely on the basis of the objection said to have been raised by the

Accountant General. No copy of the said objection was furnished to the petitioner so as to enable him to submit his explanation. The petitioner has

been completely kept in dark in respect of the details of the objection raised by the Accountant General. For all these reasons I have to necessarily

hold that the said impugned order suffers from arbitrariness and so it requires to be set aside.

As per Clause 35 of the agreement when there is any dispute in regard to payment of any bill, the parties have to work out their remedy only

through a competent civil Court. The second respondent has unilaterally passed the impugned order. Thus it has been passed in gross violation of

Clause 35 of the agreement. Since as concluded above, the impugned order under challenge in w.P. No. 8450 of 2006 has been passed in

arbitrary manner. I deem it appropriate to exercise the power under Article 226 of the Constitution of India to set aside the said order leaving the

option for the respondents to workout their remedies through competent Civil Court. Similarly in respect of the claim made by the petitioner in

W.P. 31909 of 2007 also it is open for the petitioner to work out his remedy through a competent Civil Court.

In the result,

(a) W.P. No. 8450 of 2006 is allowed and impugned order of the second respondent in letter No. DO.2/F.11(A)/2005/09M/ dated 03.03.2006

is quashed. However liberty is given to the respondents to work out their remedies through a competent Civil Court or in any other manner known

to law, if any amount is due to be recovered from the petitioner as per audit report.

(b) W.P. No. 31909 is dismissed with a liberty to the petitioner to work out his remedy through a competent Civil Court.

(c) It is made clear that if any such Civil Suit is instituted by any of the parties to these writ petitions, the Civil Court shall not be influenced by any

of the observations made in this order. No costs. Consequently, connected miscellaneous petitions are closed.