SAMBHAAV MEDIA LTD & ANR. vs COLLECTOR - RAJKOT & ORS.

This petition under Article 226 of the

Constitution of India is filed for setting aside order of

blacklisting dated 07.08.2013 of the petitioner as well

as for setting aside a termination - cum - demand notice

dated 01.02.2013.

Brief facts are as under:-

A. The petitioner, being registered

company engaged in the business of

publication of outdoor media

industry, bidded on-line in response

to the advertisement dated

26.12.2007 published in the

newspaper inviting the tender to

undertake work of designing,

financing building, maintaining and

transferring 100 bus pick-up

stands / queue shed at various

location on different routes of the

bus service maintained by the

respondent - corporation in the city

of Rajkot.

B. After the due tender process, the

bid of the petitioner was accepted

and a license agreement (herein

after referred to as the Agreement)

dated 21.02.2008 was executed

between the petitioners and

respondent-2 for the period of 10

years.

C. The petitioner as per ''the

Agreement'' had to pay an amount of

Rs.10,000/- per month per bus stand

to the respondent - corporation

towards license fees and as against

this the petitioner was authorised

to display advertisement on such bus

stand / queue shed from the private

client and was also entitled to

receive the advertisement charges.

D. Pursuant to successful entry into

agreement, the petitioner proceeded

to make huge investment in setting

up of the bus stand / queue shed.

E. The petitioner, however, found that

on many of the routes though bus

stands were erected but bus service

was not operational and in fact,

during the period between December

2010-2011, there was no bus service

at all, as a result of which

petitioner was suffering huge

losses.

F. As the petitioner was faced with

aforementioned difficulties, he

addressed communication to

respondent - corporation to

discontinue with the agreement

partially. The petitioner repeated

his request, however, no action was

taken by the respondent - corporation and thereafter, on the

ground that the petitioner has not

been able to honour the contract,

passed the impugned order on

07.08.2013 directing the petitioner

to deposit balance amount

Rs.94,63,644/- towards license fees

and also blacklisted the petitioner

for period of 3 years.

Heard Mr. Mihir Joshi, learned senior

advocate with Mr. Kunal Nanavati, learned

advocate from Nanavati Associates for the

petitioners and Shri J. P. Bhatt on behalf of the

respondent - Corporation.

Learned Senior Advocate for the

petitioner submits that after agreement was

entered into, the petitioner found that out of

total 50 routes demarcated, only 31 routes were

operational between the year 2007-2010. Moreover,

between the year 2010 - 2011, there was no bus

service at all. It was responsibility of

respondent - corporation to ensure the bus

services on such routes. Otherwise there was no

meaning for petitioner to showcase advertisement

of product of their clients.

4.1 It is submitted that in the year 2011,

the petitioner requested the respondent -

corporation to cancel and terminate the contract

for 50 bus pick-up stands out of 100 pick-up

stands. It was also requested to the respondent

to exempt the petitioner from the payment of

license fees with effect from 14.06.2012. It is

submitted that though the petitioner had invested

substantial amount policy of respondent -

corporation itself not plying the bus on the

routes where pick-up stands / queue shed were

erected by the petitioner has led to frustration

of contract at the behest of respondent -

corporation.

4.2 It is submitted that despite the

aforementioned position, the respondent -

corporation instead of responding to the request

made by the petitioner, called upon the

petitioner company to pay license fees totaling

to Rs. 55,90,290/- and indicated that the

petitioner would be blacklisted.

4.3 Learned Senior Advocate for the

petitioners took this court through communication

of the advertiser at annexure - I colly, to

indicate that on account of non-plying of the

buses on the routes, such advertisers are not

ready to put up their advertisement on the

erected bus pick-up stands.

4.4 He also drew our attention to the

statement indicating revenue generated during the

period of agreement.

4.5 He also indicated that the petitioner

has indeed made payments of the license fees till

the period June 2012. He has taken us through the

photographs of the sites where such bus pick-up

stands are erected and the present position and

submitted that now in absence of any route for

plying bus service, the structure is no more

capable of being used. He lastly submitted that

as per the agreement, which provided for

arbitration clause, arbitration proceedings were

instituted pursuant to order passed by this court

in Arbitration Petition No. 29 of 2013. The

Arbitration proceedings have concluded and the

final award is pronounced on 16.10.2015.

4.6 He, therefore, submitted that the

decision of the respondent - corporation to

blacklist the petitioners, deserves to be set

aside.

As against this, learned advocate for

the respondent - corporation, placing reliance on

the affidavit filed on behalf of the respondent,

would submit that the petitioner cannot be

permitted to go back on the terms and conditions

of the agreement entered into with the respondent

- corporation. The revenue that may be generated

by the petitioner pursuant to display of

advertisement is not relevant for the purpose of

honouring commitment made by the petitioner under

''the Agreement'' to the respondent - corporation.

It is submitted that as the petitioner has

defaulted in making the payment of license fees

as per ''the Agreement'' to the respondent -

corporation, respondent - corporation was

justified blacklist the petitioners.

Having heard learned advocate for the

respective parties, it appears that the challenge

before this court to the impugned decision which

can be split into two parts. First being

termination of contract on the basis of default

in making payment of license fees and other part

being blacklisting the petitioner on the basis of

same ground. As is referred herein above, the

issue of termination of tender and consequential

payment of the license fees and the rival claim

of the petitioner on the basis of conditions in

the ''license agreement'' dated 21.01.2008, was

subject matter of arbitration and the arbitrator

has already pronounced the final award as

mentioned in the preceding paras. Moreover,

during the course of the submissions, it is

brought to the notice of this court that the said

award of the Arbitral Tribunal is already a

subject matter of an appeal filed by the

respondent - corporation before the court having

competent jurisdiction. The final Award

pronounced by the Arbitrator on the points of

reference is reproduced herein below,

"The claim of the claimant is partially allowed. The claimant Sambhav Media Ltd. do recover the amount of Rs.1,69,60,664/- (One Crore Sixty Nine Lac Ninety Thousand Six Hundred Sixty Four only) from the respondent RMC.

Claimant do recover running interest at the rate of 9% on the amount Rs. 1,69,30,664/- from 03.05.2013 till the date of award i.e. 16.10.2015 from the respondent. Further,

The claimant is awarded amount of costs of Rs. 60,000/- towards the costs of arbitral proceeding.

The claimant do recover running interest at the rate of 15% on the amount of Rs. 1,69,90,664 (Rs.1,69,30,664 + Rs.60,000) from the date of award and thereafter, upto the date of realization of the amount awardable from the respondent.

However, it is decided and ordered that if the payment of the amount awarded as per relief ''A'' hereinabove is made within 45 days from the date of the declaration of this award. The rate of interest would be 9% instead of 15%. It is clarified that the payment need to be made within 45 days should be with interest at the rate of 9% to get the advantage to minimum the actual amount payable under the award drawn.

Rest of the claims treated dismissed with no order as to costs."

Hence, this court is refraining from

dealing with the issues which were already

covered under the arbitration proceeding i.e the

issue of payment of premium / license fees as per

the contract. However, the issue of blacklisting

the petitioner for 3 years is still required to

be decided by this court.

Clause - 8 of the preliminary definition

of the tender document, is as under:-

"Breach" means breach by either party of any of its obligation in this agreement which shall be deemed to have adverse effect to the proposed service."

8.1 Clause-20 defines Material Breach,

"Material Breach" means a breach by either party of any of its obligations under this Agreement which has / likely to have a Material Adverse Effect on the Project and which such party shall have failed to care within the Cure Period."

The tender document also provides for

obligation and rights of the respondent -

corporation and it is obligatory on the part of

the respondent - corporation to make available

the sites to the licensee for construction and

maintenance of pick-up stands / queue shed.

It is obligatory on respondent -

corporation to permit the licensee to construct

and maintain facilities on the location and also

provide with the help and guidance to establish

such pick-up stands. The licensee will also be

granted advertisement rights as per approved

design. It is obligatory upon the corporation to

ensure that no bearer are erected or placed by

any government agency on city bus pick-up

stands / queue shed. The documents also provided

a right to terminate agreement if the licensee

defaults in fulfilling any of the obligations and

responsibility. Over and above, this termination

clause also provided under item of obligation and

rights of the bidder wherein, Clause- 5 is

relevant which, as under:-

"Termination:

Bidder Event of Default the following events shall constitute on event of default by the Bidder ( a "Bidder Event of Default") unless such Bidder Event of Default has occurred as a result of RMC Event of Default or a Force Majeure Event.

Either party may terminate the Agreement by giving one month notice to the other party."

The annexure to the tender document

provided for the agreement describes the project

as,

"Description of the Project:

Construction and maintenance of 100 nos. of Good quality pick up stand/queue shed at predefined location in Rajkot City as specified in the tender.

Name of work:

To design, Finance, Build, Maintain and Transfer of good Quality pick up

stand / queue shed in Rajkot City on License basis under PPP mode."

The scope of work under the Clause-3 of

the agreement, is as under :

"Scope of Work:

c. There shall be no financial contribution from RMC for building the bus pick up stand / queue sheds and their maintenance during the license period.

d. To enable the licensee to recoup the investment, advertisement rights on the bus pick up stand / queue shed will be granted to it during the license period. Provided that, the licensee shall pay necessary fees, cess, taxes, levies etc., to any agency or authority under law.

e. Once the bus pick up stand / queue shed is built, it becomes RMC''s property & civic facility except the advertisement right granted to it by RMC. The ownership of the site and the structures built by the licensee thereon shall always continue with the RMC. The Licensee shall have no interest or claim or title over the land or the structure of any other amenities and facilities provided thereat and shall be responsible to maintain them while availing the advertisement rights during the license period. The Licensee will be granted advertisement rights as per the approved designs. The installation or

fixing or enclosure or attachment of display boards or material shall be subject to safety and security of the commuters and also the rules and regulations of the concerned authorities including RMC and payment of necessary fees, cess, tax etc."

Clause - 4 refers to Rights of the

licensee, which is as under:

"Rights:

Licensee will collect advertisement fees/ charges/ costs from the parties for whom the advertisements are displayed to recoup its investment for construction and maintenance of the facility as per the terms and conditions of the agreement."

Arbitration Clause - 12, is as under:

"Arbitration:

In the event of any dispute or difference whatsoever arising between the two parties in connection with this agreement, they shall confer at least once to attempt to amicably resolve any such dispute or difference by mediation, conciliation or similar means." 15. Annexure - H is the first communication

dated 20.12.2011 to bring to the notice of the

respondent - corporation about the practical

difficulties of maintaining the pick-up stands /

queue shed, as there was no bus services for

utilising such bus pick-up stands erected. In

fact, there were theft committed at such places

and there was no commercial use of such pick-up

stands and hence, the request was made to

discontinue the agreement in connection with 50

such bus pick-up stands / queue shed. While for

remaining 50 bus shelters again by communication

dated 14.06.2012 (annexure - I), a request was

made to the respondent - corporation to grant

exemption from making payment of license fees as

no bus service was operational on that routes and

the petitioner is not making any income from

putting up advertisement on such pick-up stands /

queue shed where bus service is non-operational.

Instead of responding to the

communication, by communication dated 31.07.2012,

the respondent - corporation proceeded to issue a

show-cause notice for making payment of license

fees which appears to have started from month of

March, 2012, till October, 2012. The show-cause

notice was also for the purpose of blacklisting

the petitioner.

It appears that the petitioner made an

attempt to settle the issue by offering upfront

payment and also forwarded the cheque an amount

of Rs. 35,32,598/- to be accepted as full and

final settlement for both operable and non-

operable bus stands. Against this, the respondent

- corporation issued a communication dated

05.01.2013 crediting the cheque amount and asking

the petitioner to deposit balance, thereby not

accepting proposal of the petitioner for full and

final settlement.

This issue need not be dealt any further

as the parties are already seeking their

respective remedy before the Arbitration Forum.

It is pertinent to point out that the

object of coming out with the tender of setting

up of pick-up stands / queue shed, reads as

under:-

"Rajkot is the largest city of Saurashtra region of western state Gujarat. It has observed the highest economic growth rate in the region. As a part of it''s many initiatives to build matching infrastructure facilities in the City, Rajkot Municipal Corporation (RMC) proposes to build good quality pick up stands / queue shed on Design, Finance, Built, Maintain and Transfer (DFBMT) basis under the Public Private Partnership (PPP) mode on license basis under competitive bidding process in initial stage to cover main roads of the city by 100 pick up stands / queue shed. The project envisages the private agency to Design, Finance, Build and maintain quality and standard bus pick up stand / queue shed during the license period where after the structures and all other facilities and amenities forming part of the pick up stand shall revert to RMC. To enable the Selected Agency (Bidder) to recoup the investment, advertisement rights on the Bus Pick up Stand / Queue Shed will be granted to it during the license period.

Considering the aforesaid, it is obvious

for any bidder to expect that after having put in

investment or erected of pick-up stands / queue

shelters by investing in infrastructure / man

power etc., the successful bidder was left to

himself to generate revenue from the advertisers

and share such revenue with the respondent -

corporation. The revenue generation, therefore,

would have direct connection with advertisement

put up on such shed / pick-up stands and the

advertiser will come forward with such shed where

there is a traffic of commuters by bus when bus

services were rendered operational on these

routes. It cannot be expected from the successful

bidders to generate any revenue when no

advertiser would be ready and willing to put up

any advertisement where there is nil traffic of

bus commuters. It is also indicated that most of

shed put up on sites which were either

inabandoned condition or dilapidated on account

of being unused due to lack of bus service on

that routes. When the petitioner has brought all

these aspects to the notice of the respondent -

corporation well in advance, it was expected of

the respondent - corporation to have taken a

pragmatic view so that sanctity of this agreement

on the basis of tender process could have been

maintained.

Failure on part of corporation to

maintain the bus service would amount to default

at the end of respondent - corporation, though,

it is argued that by the learned advocate for the

respondent - corporation that the making the bus

service operational was not the condition of

agreement which was executed between the parties.

This court is not able to accept such argument as

very foundation is for erecting bus pick-up

stands / queue shed for the bus services and the

traffic on such bus service would be deciding

factor for putting up advertisement which was

ultimate source of revenue. When the scope of

revenue was discouraged by the action of

respondent - corporation, the arguments of the

learned advocate for the respondent - corporation

need not be accepted.

The petitioner submitted detailed

explanation to the show-cause notice communicated

by the respondent - corporation by its reply

dated 14.02.2013, wherein the petitioner tendered

reasonable explanation including the practical

difficulties faced by the petitioner. The

explanation given by the petitioner appeared to

be valid explanation which ought to have been

taken into consideration by the respondent -

corporation for the purpose of taking of impugned

decision. It appears that while taking impugned

decision, the respondent - corporation has not

dealt with any of the explanation and merely on

the ground on which show-cause notice was issued,

the impugned decision of blacklisting the

petitioner was taken. The documents which were

furnished to the corporation including statement

of account to demonstrate the huge expenditure

which was incurred by the petitioner in setting

up of all pick-up stands / queue shed and the

revenue received by the petitioner during

operation of work contract, ought to have been

taken into consideration by the respondent -

corporation. Therefore, taken into consideration

the fact that the petitioner had acted in time by

making written representation to the respondent -

corporation about practical difficulties faced on

account of non-plying of bus services, the

expenditure incurred by the petitioner in setting

up pick-up stands / queue shed and the fact that

the petitioner has made payment as per contract

till 2012 is not disputed and as the valid

explanation given by the petitioner to the notice

of the respondent - corporation not considered by

the corporation while passing impugned order,

does not justify blacklisting the petitioner by

passing impugned order. Thus, impugned order of

blacklisting the petitioner is arbitrary

unreasonable exercise of power by RMC, violets

Article 14 of the Constitution and deserves to be

set aside.

In view of the aforesaid, the petition

deserves to be allowed partially. The order dated

07.08.2013 passed by the respondent - corporation

in so far as blacklisting the petitioner for the

period of three years on account of violation of

condition No.30 of the work contract is hereby

set aside. Rule is made absolute to the aforesaid

extent. No order as to costs.