Kamladityya Construction Pvt. Ltd. and Rajendra Prasad Singh and Kamla Devi and Triloki Nath Singh V. The Union Of India, Ministry Of Railway and General Manager, Eastern Central Railway and Chief Administrative Officer, Workshop Projects and Chief Engineer - 1/Wp, Workshop Projects and Deputy Chief Engineer - Iv/Wp,/Patna, Workshop Projects

CWJC/8181/2013

AI Insights

The case revolves around Kamladityya Construction Pvt. Ltd. (the petitioner), which sought to be substituted in place of Kamla Construction Company (KCC), a partnership firm, in a contract awarded by the Indian Railways. KCC had initially submitted the tender, but later, its assets, liabilities, and business were taken over by the petitioner company. The Railways, however, did not permit the substitution, leading to the filing of writ petitions by both KCC and the petitioner. The court examined the legal validity of the substitution and the implications of the takeover agreement between KCC and the petitioner.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 701900 (HC-PATNA)
• Appeal Type: Others
• Pronouncement Date: 02-07-2013
• Assessment Year: misc
• Other Referred Cases: Sattabrata vs. Mugneeram (AIR 1954 SC,44)
• Laws Referred To: Companies Act, 1956, Indian Registration Act, 1888, Transfer of Property Act, 1882, Income Tax Act, General Conditions of Contract
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: D K SINHA; BINDHYACHAL SINGH; P SAURAV
• Assessee Lawyers: UMESH SINGH; RAJEEV PRASAD; RAJENDRA KUMAR
• Keywords: Performance guarantee; Successor company; Substitution of company; Tender acceptance; Legal validity of agreement
• Section: 44AB; 17(1); 47(XIII); 17(1)(b)

Judgement Text

"IN THE HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.8136 of 2013 ====================================================== . Kamladityya Construction Pvt. Ltd., A Private Limited Company, Registered Under The Companies Act. 1956 Having It'S Head Office At 201 Co - Operative Coolony, Bokaro Steel City, P.S. Sector - Iv, Town And District Bokaro - 827001, Through Authorized Representative Binod Kumar Singh, Son Of Sri Krishnadeo Singh Resident Of 201, Co - Operative Colony, P.S. Sector - Iv, Town And District - Bokaro .... .... Petitioner/s Versus 1. The Union Of India, Ministry Of Railway, 'Rail Bhawan', Parliament Street, New Delhi 2. General Manager, Eastern Central Railway, Hajipur, At And P.S. Hajipur, District - Vaishali 3. Chief Administrative Officer, Workshop Projects, Chamber Bhawan, J.C. Road, Patna - 800001 4. Chief Engineer - 1/Wp, Workshop Projects, Chamber Bhawan, J.C. Road, Patna - 800001 5. Deputy Chief Engineer - Iv/Wp,/Patna, Workshop Projects, Chamber Bhawan, J.C. Road, Patna - 800001 .... .... Respondent/s ====================================================== with Civil Writ Jurisdiction Case No.8181 of 2013 ====================================================== 1. Rajendra Prasad Singh S/O Late Vishwamitra Singh Residing At 201, Co-Operative Colony, Bokaro Steel City, P.S., Sector-Iv, Town And District- Bokaro - 827001 2. Kamla Devi W/O Sri Rajendra Prasad Singh Residing At 201, Co- Operative Colony, Bokaro Steel City, P.S., Sector-Iv, Town And District- Bokaro - 827001 3. Triloki Nath Singh S/O Sri Bishwanath Singh Residing At 201, Co- Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 2/29 2 Operative Colony, Bokaro Steel City, P.S., Sector-Iv, Town And District- Bokaro - 827001 .... .... Petitioner/s Versus 1. The Union Of India, Ministry Of Railway 'Rail Bhawan', Parliament Street, New Delhi 2. General Manager Eastern Central Railway, Hajipur, At And P.S.- Hajipur, District- Vaishali 3. Chief Administrative Officer East Central Railway, Workshop Projects, Chamber Bhawan, J.C. Road, Patna-800001 4. Chief Engineer-1 / Wp East Central Railway, Workshop Projects, Chamber Bhawan, J.C. Road, Patna-800001 5. Deputy Chief Engineer-Iv/W.P./Patna East Central Railway, Workshop Projects, Chamber Bhawan, J.C. Road, Patna-800001 .... .... Respondent/s ====================================================== Appearance : (In CWJC No.8136 of 2013) For the Petitioner/s : Mr. Umesh Prasad Singh, Sr. Advocate, Mr. Rajeev Ranjan Prasad Mr. Rajendra Kumar For the Respondent/s : Mr. D.K. Sinha, Sr. Advocate Mr. Bindhyachal Singh Mr. P.Saurav ====================================================== CORAM: HONOURABLE MR. JUSTICE KISHORE KUMAR MANDAL ORAL ORDER 5 02-07-2013 I.A. No. 2864 of 2013 in C.W.J.C. No. 8136 of 2013. Heard learned counsel for the petitioner and the respondent Railways. Present application seeks amendment in the writ petition. It is submitted that while the application was in the process of being Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 3/29 3 filed, the respondent passed another order contained in letter No. 274 dated 15.4.2013 whereby the petitioner was given 48 hours notice in terms of the provisions contained in the general conditions of contract for its signing off. Having heard the parties, the said interlocutory application is allowed. The writ petition is, accordingly, amended and Annexure-17 is also made one of the impugned orders. I.A. No. 2863 of 2013 in C.W.J.C. No. 8181 of 2013. Heard learned counsel for the petitioner and the respondent Railways. By filing the present application, the petitioner seeks amendment in the writ petition. It is submitted that while the said application was in the process of filing, the respondents served the petitioner with a notice contained in letter No. 274 dated 15.4.2013 (Annexure-17) whereby the petitioner was given 48 hours notice in terms of the provisions contained in the general conditions of contract for its signing off. Having heard the parties, the said application is allowed. The order contained in Annexure-17 to the said interlocutory application is also made one of the impugned orders of the writ petition. Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 4/29 4 Both the writ applications raise common issues, founded on common facts. They have been heard together with the consent of the parties and the order present will govern them. M/s Kamla Construction Company (for short ‘the KCC’) a partnership firm, filed tender/papers in response to the notice inviting tender dated 18.09.2009 issued by the Respondent- Railways. The last date for filing tender was 27.10.2009. The finalization of tender by the railway authority took considerable time. In the meanwhile, the managing partners of KCC, namely, Rajendra Prasad Singh along with his son Adityya Kumar promoted a private limited company under the name and style ‘Kamladitya Construction Co. Pvt. Ltd. (For short ‘the Company’) which was registered on 29.01.2010. As per clause 5 of the Memorandum of Association the Company (petitioner of CWJC No. 8136 of 2013) was authorized to acquire the capital assets, liabilities, business, goodwill, personnel(s) of the KCC(partnership firm). Under a written agreement (Annexure-3/2) entered on 01.04.2010 between the promoters of the Company as well as the partners of KCC the petitioner-company acquired capital assets and all liabilities of the KCC. It was contemplated therein that the capital assets shall be taken over with clear understanding to carry out and satisfy liabilities of the parties. It was further mentioned Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 5/29 5 that there was no immovable asset belonging to the KCC nor that will form part of the transfer in favour of the petitioner-company under the said agreement. The same was, therefore, not required to be registered in terms with the provision contained in the Indian Registration Act. It took more than two years for the Respondent Railways to finalize tender. By a communication dated 16.02.2012 (Annexure-2) the Chief Administrative Officer, WP, ECR, Patna communicated to KCC regarding acceptance of the tender submitted by it for execution of contract work estimated value thereof was more than 86 crores. The KCC was called upon to submit the Performance Guarantee (PG) and other required papers/documents and to start work within 15 days of the receipt of the letter of acceptance. A formal agreement for execution of work was also to be signed between the parties. The petitioner company approached the Respondent Chief Administrative Officer, Workshop Project of the Respondent Railways by filing a representation dated 23.03.2012 (Annexure-7) seeking substitution of the company in place of KCC(the partnership firm; the tenderer) and to permit the company to do all necessary acts, things including execution of agreement as the company being the successor of the KCC was ready and willing to execute the work on the same terms set out in the tender. In the application it was Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 6/29 6 further disclosed that KCC represented by its partner(s) was engaged in several contract works and was registered with CPWD, IRCON International Ltd (Govt. of India Undertaking), Military Engineering Service of the Central Government and various departments of the State of Bihar and other public undertakings. On request being made in this regard those departments/authorities have substituted the company in place of KCC and registered them as a contractor and contract work has been allowed to be executed which was earlier assigned to the KCC. The matter was examined by the Respondents and legal opinion was sought. Relying on the legal opinion of the advocate of the Railway it was opined that such substitution sought for by the petitioner company was not permissible. On being conveyed about the said view the petitioner pointed out certain facts demonstrating the infirmities. In view of the said request another legal opinion was obtained by the Railways which supported the claim of the petitioner of being substituted in place of KCC being the successor company of KCC. The respondent-railways ultimately held the view that such substitution of the petitioner company in place of KCC would not be sustainable in law. On 31.10.2012 (Annexure-9/1) the Chief Engineer of the Respondent Railways communicated to the KCC that in view of the Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 7/29 7 attending facts the tender accepted by the Railways and communicated to the KCC vide letter dated 16.02.2012 (Annexure-2) is liable to be terminated as per the terms and conditions of the contract as KCC had failed to abide by the instruction contained in the said letter. The KCC was put on seven days notice in accordance with Clause 62 of the general conditions of contract (GCC) for termination of the contract and to complete the balance work. Copy of the said communication was addressed to the ex partner of KCC as well as the petitioner company. The ex partner of KCC namely Rajendra Prasad Singh again approached the Respondent Chief Engineer of the Railways by filing an application dated 02.11.2012 (Annexure-10) stating in detail the facts relating to the take over of the KCC by the petitioner company in view of clause 5 of the amended memorandum of association of the company whereunder KCC was taken over under an agreement reached by and between them on 01.04.2010 whereafter the KCC had become non existent for all practical purposes except to receive the outstanding dues/amount receivable by the KCC. It was pointed out that by the time the letter of acceptance dated 16.02.2012 was issued to the said partnership firm, the KCC had become nonest/non existent. The said view was, therefore, per se nullity and nonest. As an ex partner of the Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 8/29 8 firm (KCC) a request was again made to substitute the company in place of KCC and allow the successor company to sign the agreement and execute the work. At this stage, the petitioner company filed a writ petition in this Court vide CWJC No. 21816 of 2012. The said writ application was disposed of by order dated 01.03.2013 (Annexure-13) directing the Respondent Railways to pass a final order on the said claim of the petitioner. Relevant part of the said order is extracted herein below:- It is made clear that this Court has not expressed any opinion on the merits of the case which must be considered in accordance with law by the authorities of the respondent Railways since the petitioner has already filed reply to the show cause both on behalf of one of the ex- partner of the firm and the successor Company. Let the final order be passed within a period of three weeks from the date of receipt/production of a copy of this order. In the meantime, status quo as of today shall be maintained. In the light of the said order the ex partner of KCC who was also functioning as the Managing Director of the petitioner company filed a representation dated 8.03.2013 (Annexure-14) setting out in detail the reasons and the relevant facts seeking substitution of the successor company. The respondents considered the claim of the petitioner and by a speaking order passed on 04.04.2013 (Annexure-15) rejected the said claim for its substitution in place of KCC. By another communication dated Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 9/29 9 5.4.2013 (Annexure-16) the respondents issued a notice to the KCC whereby in terms of claim 62 of the GCC, the KCC was instructed to commence the work and show adequate progress of work within seven days of the receipt failing which the contract was to be terminated. Aggrieved by the aforesaid two communications dated 04.04.2013 (Annexure-15) and the notice issued to the KCC in terms of clause 62 of the GCC (Annexure- 16) the present writ petition has been filed. The KCC through the ex partner filed CWJC No. 8181 of 2013 challenging those orders on the similar/identical ground(s). Let it be reiterated while these applications were in the process of being filed in this Court the respondents came out with an order dated 15.04.2013 whereby the KCC was put on 48 hours notice in terms of clause 62 of GCC before rescission and as a consequence thereof the security deposit was to be forfeited. By filing interlocutory application(s) the said order has been sought to be challenged in both the writ application(s). Heard Mr. Umesh Prasad Singh learned Sr. Counsel for the petitioners in both the applications and Mr. D.K.Sinha, Sr. Counsel for the Railways, assisted by Mr. P. Saurav, Advocate. Learned counsel for the petitioner submits that the partnership firm, namely, KCC had three partners, namely Shri Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 10/29 10 Rajendra Prasad Singh, Triloki Nath Singh and Smt. Kamla Devi, wife of Shri Rajendra Prasad Singh. KCC was assigned several contract jobs. In the meanwhile the petitioner-company was promoted by Shri Rajendra Prasad Singh and his son Shri Aditya Kumar as private limited company with initial paid up capital of Rs. 8 lacs. The company was registered on 29.01.2010. Under a written agreement dated 01.04.2010 (Annexure-3/2) between the partners of the KCC and the company, the assets, liabilities, business, plants and machinery, goodwill, personnel etc. of the KCC firm was taken over by the petitioner company. All these events took place much before the acceptance of the tender earlier submitted by the KCC to the Railways in response to the NIT issued sometime in 2009 and communication of acceptance thereof by the Respondent Railways (Annexure-2) on 16.02.2012. According to section 47 (xiii) of the Income Tax Act incorporated by the Finance Act 1988 the asset and liabilities of the firm KCC became the assets and liabilities of the company. The partners of KCC became the shareholders of the successor company in same proportion of the share capital in which their capital accounts stood in the books of firm on the date of such succession. Sub clause C of the said provision forbids the ex partner(s) of the firm (KCC) not to receive any consideration or Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 11/29 11 benefit directly or indirectly in any form/manner other than by way of allotment of share in company and according to clause (d) thereof the aggregate shareholdings in successor company of the partner of the firm must not be less than 50% of the total voting right in company and their share holder to continue to be as such for a period of 5 years from the date of succession. The ex partner(s) of KCC by virtue of aforesaid provision were prohibited from continuing the business in the name of the firm(KCC) on or after the date of succession. The KCC, therefore, continued to exist like a dead body without any business except receiving the profit etc. of the job which was earlier assigned to the KCC and from the date of its take over executed by the successor company consisting of almost all the ex partner(s) of KCC. . Learned counsel further submitted that in any case on 16.02.2012 when the letter of acceptance was issued by the ECR, the partners of the firm (KCC) were not competent to enter into an agreement and/or to act as a partner of the firm. The same partners of the firm who have become shareholders of the petitioner company are, however, entitled to act for and on behalf of the KCC. In terms of section 47 (xiii) of the I.T. Act, the petitioner company became the successor of the partnership firm. Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 12/29 12 The ex managing partner of the firm (KCC) is the Managing Director of the petitioner company and as such was entitled to be substituted and allowed to enter into contract and execute the work on the same condition(s). In fact, it was conveyed to the authorities of the Railways that the petitioner company was ready and willing to act on the same terms and conditions. While the said matter was under consideration the Engineers at sight allowed the petitioner company to operate and execute the contract work under the belief that substitution of the petitioner company was a formal matter. The petitioner-company mobilized its resources and placed at work site plant and machinery, personnel and materials and commenced execution of work. The Respondent Railways obtained two legal opinions in the matter. One legal opinion found no hurdle in substituting the petitioner company in place of KCC, whereas another opinion expressed the opposite view. It has been submitted that acting in their discretion the respondents may direct the petitioner-company to execute the personal guarantee/surety which the petitioner-company or its share- holder(s) is ready and willing to execute. Learned counsel submits that from the balance sheet of the KCC as on 31st of March, 2011 (Annexure-5), it would appear that all assets/profits in the hands of KCC stood transferred to the company. The same fact is manifest Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 13/29 13 from the balance sheet as on 31st of March, 2011 of the petitioner company (Annexure-6). Anticipating the objection that could be raised against such take over of KCC by the petitioner company Shri Singh explained that the leasehold property shown in the balance sheet and profit and loss account of KCC is because of the fact that the KCC had applied for purchase of leasehold property/land at Bokaro Steal City and deposited the price thereof with the Steal Authority of India Ltd. (SAIL) but the allotment thereof was refused by the SAIL. A litigation in this regard was filed before the Jharkhand High Court. The said order was quashed but no direction was issued for allotment of the leasehold property. Resultantly, no leasehold property has till date been acquired by the KCC in lieu of the price paid by the KCC nor the money has been refunded by the SAIL. Learned counsel referring to the impugned order passed in the light of the direction issued by this Court as contained in Annexure-15 contended that the request of the petitioner company for substitution has been rejected mainly on three grounds, namely, (i) the take over agreement is legally not valid because the same is not registered under the Transfer of Property Act, 1882 and the Indian Registration Act,1888. (ii) The firm (KCC) had filed income tax return for the financial year 2010-11 (A.Y. 2011-12) and as such the firm (KCC) continued to Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 14/29 14 survive and was engaged in doing business even after take over and, (iii) Clause 14 of the GCC permits initial change(s) in composition of the firm(tenderer) and as such there is no provision for substitution. Learned counsel reiterated referring to the diverse pleadings of the present writ petition as well as the pleadings made in the previous writ petition being CWJC No. 21816 of 2012 (Annexure-13) that the firm(KCC) did not possess any immovable property. The leasehold land has not been allotted to and acquired by the KCC. No relief in this regard has been granted by the writ court and no lis in this regard is pending. If there is no transfer of immovable property then the agreement reached by and between KCC and the petitioner company is not required to be registered. He drew attention of the Court to the relevant provision of the Transfer of Property Act, 1882 and section 17(i) and (iv) of the Indian Registration Act, 1888. Adverting to the second ground of refusal, it has been submitted that the KCC had been executing a number of contracts which were business in hand on the date of succession. In terms of the take over agreement and in the eye of law the business in hand became the business of the company but since the transactions were the result of the agreement executed in the name of the firm(KCC) and there has been receipt/income in the name of the Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 15/29 15 firm, those receipts/incomes in the hands of KCC were reflected in the balance sheet of KCC. The work was, however, executed by the shareholder of the petitioner company. The income in such circumstance was received by the firm-KCC which was later transferred to the petitioner company. The KCC was under legal obligation to file audited balance sheet in accordance with the provisions of section 44AB of the I.T. Act and at no point of time the KCC had entered into any fresh business agreement on or from 01.04.2010. In fact, the KCC or the ex partner could not do so in view of the provision of section 47 (xiii) (d) of the I.T. Act. The ex partner continued as shareholders of the petitioner company having specified voting right (i.e. 98 %) in the company. The contract work earlier assigned to KCC were, however, executed by the petitioner company but the income/profit received and expenses incurred in connection with those works were reflected in the balance sheet of the KCC and the firm was under statutory obligation to file its return in accordance with the mercantile system of accounting. It has been emphasized that the petitioner company in such circumstance has been substituted in respect of all works in the hands of KCC by different authorities/PSUs except the present one which is in dispute. While the authorities of ECR were still in the process of finalizing the present tender Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 16/29 16 which consumed nearly two-and-a-half years the petitioner company succeeded the business, assets, liabilities etc. of the KCC and became the successor of the firm in fact and in law. The company for all practical purposes stepped into the shoes of the firm (KCC). Referring to the balance sheet (Annexure-5) it has been highlighted that under the head ‘Partner’s Capital Account’ it has been shown as ‘00’ obviously for the reasons that assets as existing on the date of take over was/were transferred and vested in the petitioner-company in the same proportion in the name of respective partners. Referring to the guidance of Engineers and Contractors for engineering works (Annexure-19) it has been submitted that clause (f) of Regulation 1.2 of the said guidance contemplates that tenderer would mean and include personal representatives, successors and permitted assigns. Reliance placed on the provision of GCC to reject the prayer of the petitioner company is not justified in law as the GCC is to provide initial guidelines for the Engineers and cannot be construed as law for the time being in force within the meaning of Article 13 of the Constitution of India. Elaborating on the principles of equity, it has been argued that there being no statutory law prohibiting substitution, the respondents ought to have considered that in view of the firm Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 17/29 17 (KCC) having been taken over the petitioner-company should have been substituted particularly when different State Governments, Central Government Departments and Undertakings as also Military Organization already permitted such substitution. The petitioner-company has taken over all the plant and machinery, goodwill and personnel of the firm. The ex partner(s) of the firm are now shareholders of the petitioner-company who are ready and willing to furnish the personal guarantee or surety to compete the work on the same terms/rate(s). The Respondent- Railways is not going to suffer in any manner. The public exchequer shall also not be burdened. However, in case of non grant of the relief, the Respondent-Railways will have to invite a fresh tender which will obviously on much higher rate(s) apart from resulting delay in the execution of the work. The ultimate casualty will be the public exchequer for no good and valid reason. Delay of execution of work will not be in the interest of the Respondent Railways. The respondents have completely overlooked the aforesaid aspect of the matter. This Court being the Court of equity should invoke its jurisdiction and grant relief to the petitioner. While pressing CWJC No. 8181 of 2013 it has been argued that in the setting of facts noticed hereinabove which are Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 18/29 18 supervening circumstances which attracted bar under the relevant provisions of the I.T. Act the performance of the contract becomes impossible and the parties be, therefore, declared to have been absolved from the further performance of it. The change of the circumstance i.e. take over of the firm (KCC) by the petitioner company had taken place much before the acceptance of offer made by the firm (KCC). He refers in this regard to section 56 of the Contract Act and the principles enunciated by a Division Bench of the Calcutta High Court in the case of Sattabrata vs. Mugneeram (AIR 1954 SC,44) Counsel for the respondents, per contra, supported the impugned order and the reasons set out in support thereof. Referring to the first ground it has been submitted that the take over agreement executed by and between the firm(KCC) and the petitioner-company on 01.10.2004 is not a legally valid agreement on account of non registration thereof under the provisions of the Indian Registration Act. He relies in this regard on section 17 (1) and (b) of the Registration Act which provides that all non testamentary instruments which purports or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent of the value of one hundred rupees and upwards, to or in immovable Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 19/29 19 property need compulsory registration. Section 17(1 (d) declares that leases of immovable property from year to year, or for exceeding one year, or reserving an yearly rent need compulsory registration. The firm(KCC) had immovable property by way of lease/settlement of land made by the Steel Authority of India (SAIL) which has been sought to be taken over by the succeeding company namely the petitioner and as such the agreement between them was required to be registered. He refers in this regard to the audited balance sheet of the firm(KCC) for the year ending on 31.03.2010 wherein assets in the shape of leasehold property purchased at Bokaro has been reflected. It has thus been submitted that manifestly there is transfer/creation/assignment of rights and interests in the said immovable property by the take over agreement (Annexure-3/2) which is not a registered document. The said take over agreement (Annexure-3/2) having not been registered should not be taken as evidence of the transaction. Referring to the second ground of rejection it has been submitted that there is/are materials to demonstrate that the firm(KCC) is/was functional and doing the business even after 01.04.2010. The partnership firm (KCC) filed the income tax return for the assessment year 2011-12. The profit and loss account of the partnership firm(KCC) for the year Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 20/29 20 ending on 31.03.2011 would show that there is income and expenditure at the hands of the partnership firm(KCC) even after 01.04.2010. The said firm apparently exists for doing the business and cannot be treated as the dead body as has been argued by the petitioner. Learned counsel has further argued that the provision contained in GCC does not permit such change and composition of the firm and as such the prayer seeking substitution of the petitioner-firm in place of the firm (KCC) would not be sustainable in law. On a consideration of the legal and factual submissions made on behalf of the parties this Court has to examine whether the three grounds set out in the impugned order (Annexure-15) for rejecting the case of the petitioner for being substituted in place of the firm(KCC) permitting it to enter into an agreement pursuant to the letter of acceptance dated 16.02.2012 (Annexure-2) are sustainable in law. The facts which are luminescent from the pleadings and the submissions of the parties need to be highlighted. The firm (KCC) submitted the tender notice in response to NIT issued by the respondents on 6.10.2009. Various contract works were in the hand of the firm (KCC) and/or in the offing. Some of the partners of the firm (KCC) created the petitioner-company and got registered under the Companies Act Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 21/29 21 on 29.01.2010. The memorandum of association of the company was amended with a view to take over the business, assets, liabilities, goodwill, personnel, plant and machinery of the partnership firm (KCC). The same was approved by the Registrar of the company. An agreement was entered into by the petitioner company and the firm(KCC) whereby the petitioner-company took over the business, assets, liabilities, materials and personnel etc of the firm(KCC). It was contemplated in the said agreement that at least for five years the firm will not do business in view of prohibition in this regard contained in section 47(iii) of I.T. Act. There is no issue raised that such partnership firm is a partnership at will and can be dissolved in accordance with the relevant provisions of the Indian Partnership Act 1932. As a result of such take over the firm(KCC) was not permitted to do any further business at least for a period of five years. Nearly two years thereafter the tender submitted by the firm (KCC) to the respondents was accepted and communication in this regard was made on 16.02.2012. The successor company (petitioner) in the meanwhile approached the different government authorities/agency/undertakings for substitution of the petitioner company in respect of the contract work in the hands of the firm(KCC) at the time of take over and/or subsequently allowed Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 22/29 22 to it. On being so represented and after being satisfied from the documents including the different registration, certificate(s) and the contents of the agreement by which firm(KCC) was taken over by the petitioner-company etc. the petitioner-company was allowed to be substituted and permitted to execute the work. The income and expenditure incurred in connection therewith was/were shown in the balance sheet of the firm (KCC) in view of relevant accounting system and income tax return was filed by KCC even after take over by the petitioner-company in view of the mandate contained in I.T. Act. The first ground of rejection is the defect/lacuna in take over agreement on account of the same having not been registered under the Registration Act. Such issue has been raised on the ground that that the firm(KCC) had land leased out and/or allotted to by SAIL which is reflected from the balance sheet of the firm(KCC). If by such take over the interest either present or future in the said land was intended to be transferred then the said document necessarily requires to be registered. The petitioner has pleaded that the firm (KCC) at no point of time possessed the said land/immovable property as the SAIL refused to lease out or sell the land in favour of the firm(KCC) in spite of deposit of substantial amount therefor. A writ petition was filed by the Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 23/29 23 firm(KCC) challenging such refusal which was although allowed but no substantive relief was granted to the petitioner for allotment of the said property. Resultantly, no leasehold property has been acquired by the firm(KCC) till date. No lis in this regard is pending in any court at the instance of the petitioner and/or the firm(KCC) and as such for all practical purposes it can be held that the firm(KCC) did not acquire any interest in the leasehold property. If that be so, then the agreement of take over dated 01.04.2010 was not required to be registered. It has rightly been submitted on behalf of the petitioner that such an objection could have been raised by the income tax authority but not by the respondents. The only interest of the respondents would be, in these circumstances, to ensure furnishment of adequate guarantee by the successor company in order to safeguard the interest of the respondent-railways. The status of the firm (KCC) until take over by the petitioner-company was that of a tenderer. The process of acceptance thereof consumed nearly two years. The acceptance letter dated 16.02.2012 (Annexure-2) is conditional inasmuch as the tenderer was required to submit further performance guarantee amounting to rupees five crores and odd. Only on fulfillment of those conditions a formal agreement was to be executed between the parties. The process, therefore, is at its initial stage. Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 24/29 24 Substitution of the petitioner-company which would enfold assignment/transfer/subletting could have been allowed even under the GCC. The party to the contract can be justified in raising the issue relating to the execution of the work by the agency/contractor with whom a formal contract under Article 299 of the Constitution of India is signed and to safeguard their financial interest in case of non performance and/or deficient performance thereof. It is to be seen that the firm(KCC) and its successor company(petitioner) approached in similar circumstances the State Government/Agency/Public Sector Undertakings and the Union of India for substitution of the successor company which has been allowed. The facts which are glaring from the records are that the petitioner company succeeded all the assets and liabilities, materials, personnel of the firm(KCC). The partners of the firm(KCC) having the expertise and experience to execute the work for which tenders/proposal were filed are either the shareholders and/or the Managing Director of the successor company. The shareholders including the Managing Director are ready and willing to submit personal performance guarantee in addition to the liabilities which the petitioner-company would incur considering its status as a limited company. The terms contained in GCC are not statutory Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 25/29 25 law. They would govern the parties in case of entering into a formal contract between the parties. Clause 1.2 (f) adequately provides recognition of successor and/or permitted assigns of the tenderer. The petitioner company having stepped into the shoes of the firm(KCC) could have been allowed to be substituted without raising a bogey with respect to the legality of the agreement of take over. From the materials placed on record it further appears that the respondent having obtained legal opinion were inclined to substitute the petitioner-company in place of the tenderer namely (KCC) but subsequently refused to accept the same. No statutory law prohibiting such substitution except the GCC has been brought to the notice of this Court by the respondents. An issue referring to the GCC has been raised that such succession which would mean assignment or subletting is impermissible therein. The said stand of the respondents would not be sustainable in law. Firstly, the GCC shall bind the parties only in case of execution of a formal contract and secondly such succession is permissible even under GCC at the initial stage. The letter of acceptance may be treated in particular facts of the case an enforceable agreement until signing of the formal contract but it appears that on perusal of the said letter of acceptance that the same was conditional. The proposer was Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 26/29 26 required to fulfil few conditions only to be bound by the said acceptance by the respondents. The second ground of rejection also does not appear to be sustainable in law since the firm(KCC) has several contract jobs in hand at the time of its take over. Some of the contract jobs/works were allowed to be executed by the said firm and/or successor company thereof. Those works on and after the take over were executed by the company and/or the shareholders thereof i.e. ex partners of the firm(KCC) but the payments were made to and received by the KCC which were duly reflected in their balance sheet of the succeeding year and was/were ultimately transferred in toto to the petitioner-company. The third ground of rejection is also fit to be declared unsustainable in law in view of my conclusion recorded hereinabove. This Court while exercising jurisdiction under Article 226 of the Constitution of India is the Court of equity. Well-established principles of equity are bound to influence the consideration of Court. The petitioner has emphasized those aspects of the matter. The notice inviting tender was floated by the respondents for execution of the work sometime in the year 2009. The firm(KCC) succeeded by the petitioner-company had submitted the tender papers on 6.10.2009 quoting the rates at which it had agreed to Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 27/29 27 execute the work. It took more than two and a half years for the respondents to decide and accept the offer made by the firm(KCC) and ultimately the acceptance of the said offer was communicated on 16.02.2012. In the meanwhile, the firm(KCC) was taken over by the petitioner-company which was established by the erstwhile partners of the firm(KCC). All assets and liabilities including plant and machinery, personnel and goodwill were succeeded by the petitioner-company. The plant and machinery and personnel(s) manning them provided the expertise to the firm submitting the tender papers. By reason of such take over those expertise continued with the petitioner company. The party to the contract can justifiably be concerned with the execution of work as per specification by the tenderer. Another bonafide concern of the party to the contract (herein the respondent) could be the guarantee of due performance of contract. Obviously, the shareholders of the petitioner-company shall have limited liability but the respondent could have called upon to furnish the personal guarantee by the shareholders (ex partners of the KCC) for due performance of the contract. The ex partners of KCC who are shareholders and also the Managing Director of the petitioner-company are ready and willing to submit such personal guarantee for due performance of the Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 28/29 28 contract. In case, accepting hyper technical issue/ground(s) on which such claim of the petitioner-company for substitution and permission to enter into a formal contract and execute the work at the quoted rates are upheld then the same will have serious adverse impact on the public exchequer. The respondents have conveniently overlooked this relevant aspect of the matter. Secondly, the same would call for re-initiation of the entire process. The rates quoted by the petitioner in the tender papers would not naturally be the rates. The casualty, in that event, will be the public money. In case of any statutory bar in allowing such substitution by the successor company the matter would have been different. The principles of equity would not persuade the Court to violate the law. The aforesaid consideration is in addition to my view already expressed above for granting the relief prayed for in this writ application. As this Court is inclined to grant the main relief prayed for by the petitioner-company, the issue(s) raised in the cognate matter are not gone into and decided. For all these reasons discussed hereinabove, this Court is persuaded to allow the present writ application. Resultantly, the order dated 04.04.2013 as contained in Annexujre-15 passed by the Chief Administrative Officer(WP) ECR, (respondent no.3) is Patna High Court CWJC No.8136 of 2013 (5) dt.02-07-2013 29/29 29 quashed and set aside. Consequently, the notice contained in letter no. 274 dated 15.04.2013 (Annexure-17) is also quashed and set aside. The respondents shall now call upon the Managing Director/shareholder(s) of the petitioner-company to furnish personal guarantee and/or fulfil any such other conditions for due execution of work as per specification(s) on the rates quoted by the erstwhile firm(KCC) and on fulfillment of those terms/conditions by the petitioner company, the respondents shall proceed to complete the rest of the formalities forthwith enabling the petitioner-company to execute the work in question. No order as to cost(s). HR/- (Kishore Kumar Mandal, J) "