KNK CONSTRUCTION PRIVATE LIMITED V. UNION OF INDIA

WP/9599/2022

AI Insights

The case involves KNK Construction Private Limited, which challenged an order by the Central Public Works Department (CPWD) that suspended its license due to a failure to notify a change of name in a timely manner. The company had changed its name from 'KNK Nexgen Construction Private Limited' to 'KNK Construction Private Limited' in 2017 but did not receive in-principle approval from the enlistment authority before doing so. The Empowered Committee recommended suspension based on a perceived violation of the Enlistment Rules, specifically Rule 9.6, which requires prior approval for name changes. The court found procedural flaws in how the Empowered Committee handled the case, particularly the lack of a proper show cause notice and hearing, leading to the quashing of the suspension order.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 739109 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-10-2022
• Assessment Year: misc
• Laws Referred To: Articles 226 and 227 of the Constitution of India, Companies Act, 1956, Enlistment Rules, 2020
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JAYAKARA SHETTY
• Assessee Lawyers: MANEESHA KONGOVI
• Keywords: Change of name; Suspension of License; Writ petition; CPWD Contracts; Enlistment Rules
• Section: 13(2); 9(2); 13(3); 12(C); 12-B; 12(A); 9(6); 12(g); 13.7(c); 13.7(g)

Judgement Text

" - 1 - WP No. 9599 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF OCTOBER, 2022 BEFORE THE HON'BLE MR JUSTICE M.NAGAPRASANNA WRIT PETITION NO. 9599 OF 2022 (GM-RES) BETWEEN: 1. KNK CONSTRUCTION PRIVATE LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED HEADQUARTERS AT NEW NO.359, OLD NO.95, 7 CROSS, ASHOKA PILLAR ROAD, JAYANAGARA 1 BLOCK, BENGALURU – 560 011. REPRESENTED BY ITS DIRECTOR, MR. DARSHAN P. 2. MR.ASHISH KRISHNASWAMY PROMOTER AND SHAREHOLDER KNK CONSTRUCTION PRIVATE LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956 HAVING ITS REGISTERED HEADQUARTES AT NEW NO.359, OLD NO.95, 7th CROSS, ASHOKA PILLAR ROAD, JAYANAGAR I BLOCK, BENGALURU – 560 0110 REPRESENTED BY ITS POWER OF ATTORNEY HOLDER, Digitally signed by PADMAVATHI B K Location: HIGH COURT OF KARNATAKA - 2 - WP No. 9599 of 2022 MRS. DEEPA KRISHNASWAMY …PETITIONERS (BY SMT. MANEESHA KONGOVI., ADVOCATE) AND: 1. UNION OF INDIA MINISTRY OF HOUSING AND URBAN AFFAIRS, NIRMAN BHAVAN NEW DELHI – 110 011 REPRESENTED BY ITS SECRETARY. 2. THE CENTRAL PUBLIC WORKS DEPARTMENT MINISTRY HOUSING AND URBAN AFFAIRS, HAVING ITS OFFICE AT 1st FLOOR, G WING, RAJAJI BHAVAN 3 AVENUE, BESANT NAGAR CHENNAI, TAMIL NADU 600 090. REPRESENTED BY ITS: SPECIAL DIRECTOR GENERAL (PRC) EMAIL:[e-mail] 3. THE SPECIAL DIRECTOR GENERAL (PRC), CENTRAL PUBLIC WORKS DEPARTMENT HAVING ITS OFFICE AT 1st FLOOR, G WING, RAJAJI BHAVAN 3 AVENUE, BESANT NAGAR CHENNAI, TAMIL NADU 600 090 EMAIL:[e-mail] …RESPONDENTS (BY SRI. JAYAKARA SHETTY H., ADVOCATE) - 3 - WP No. 9599 of 2022 THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ORDER DTD 28.02.2022 ISSUED BY THE R-3 VIDE ANNX-A; DIRECT THE R-2 TO UPDATE ALL ITS RECORDS TO REFLECT THE CHANGE IN NAME OF THE PETITIONER COMPANY FROM KNK NEXGEN CONSTRUCTION PRIVATE LIMITED TO KNK CONSTRUCTION PRIVATE LIMITED WITH EFFECT FROM 18.05.2017. THIS WRIT PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER The petitioners is before this Court calling in question an order dated 28.02.2022, bearing No.007-2022 in file No.E-288/2011/ADG(SR)/383-84(H), passed by respondent No.3 - the Special Director General, Central Public Works Department, by which, the license of the petitioners is withhold, which would empower participation in the Central Public Works Department Contracts, has been suspended. 2. Heard Smt. Maneesha Kongovi, learned counsel for the petitioners and Sri Jayakara Shetty H., learned counsel for the respondents. - 4 - WP No. 9599 of 2022 3. Brief facts leading to the filing of the present petition, as borne out from the pleadings, are as follows: The first petitioner was incorporated on 12.04.2006, in the name and style of ‘KNK Nexgen Construction Private Limited’. On 24.08.2015, the first petitioner gets enlisted as Class I contractor. On 09.10.2015, the license that was in subsistence comes to be extended upto 31.03.2018. On 18.05.2017, the name of the first petitioner is changed from ‘KNK Nexgen Construction Private Limited’ to ‘KNK Construction Private Limited’. The word ‘Nexgen’ was removed. The change of name was intimated to respondent No.3 - the Special Director General of Central Public Works Department (for short ‘CPWD’) on 02.11.2017. 4. On 28.02.2022, four years after the change of name and its intimation to respondent No.3, an order is passed by respondent No.2, suspending the license of the - 5 - WP No. 9599 of 2022 first petitioner and restraining from participation in the contracts of the CPWD. The reason for passage of the said order is the change of name of the first petitioner from ‘KNK Nexgen Construction Private Limited’ to ‘KNK Construction Private Limited’, which according to the impugned order was not intimated to the respondents. This in terms of clause 9.2 of the Enlistment Rules, 2020 (for short ‘the Rules’), leads to passage of the impugned order. Passage of the order dated 28.02.2022, drives the petitioners to this Court in the subject petition. 5. Learned counsel for the petitioners would contend that the order dated 28.02.2022, comes as a bolt from the blue, to the petitioners, as the petitioners were not made aware of any of the proceedings that lead to passage of the impugned order dated 28.02.2022. Though the order refers to various such proceedings taken by the Empowered Committee and the order being passed as per the advice tendered by the Empowered Committee dated - 6 - WP No. 9599 of 2022 18.11.2021. The change of name of the first petitioner has admittedly happened in the year 2017, records would indicate its intimation to respondent No.3 in the year 2017 itself. She would further submit that the name is changed by removing the word ‘Nexgen’ and no constitution of the first petitioner - Company is changed for any disciplinary action to be taken. 6. Learned counsel for respondent No.3 would refute the submission of the learned counsel for the petitioners by taking this Court through the Rules of CPWD to contend that prior approval had to be obtained by the company for any change of name or status of the Company. Since it was not intimated to respondent No.3, as no intimation is received at the hands of respondent No.3, the order impugned cannot be found fault and he would seek dismissal of the petition. - 7 - WP No. 9599 of 2022 7. I have given my anxious consideration to the submissions made by the learned counsel for both the parties and perused the material on record. 8. The afore-narrated facts which lie in a narrow compass, are not in dispute. The reason behind the passage of the impugned order dated 28.02.2022, form the crux of the issue. It is therefore quoted for the purpose of ready reference: “OFFICE ORDER Subject: Suspension for two years of Enlistment Registration under Class 1 (Composite) category in CPWD in R/o M/s KNK Nexgen Construction Pvt Ltd, No.19, 33rd A Cross, 11th Main Jayanagar, 4th T Block, bangalore-560041 1. Whereas M/s KNK Nexgen Construction Pvt Ltd., No:19,33rd A Cross, 11th Main, Jayanagar, 4th T Block, Bangalore-560041, was registered in Class-1 (Composite) category in the whole of the Indian Union vide this Office Order No.8(civil) /2015/2177-90 dt 24/08/2015. The above order stipulates that they will be bound by Enlistment Rules of CPWD as amended from time to time. - 8 - WP No. 9599 of 2022 2. Whereas, M/s KNK Nexgen Constructions Pvt Ltd has submitted an online application for change in name of entity from M/s KNK Nexgen Construction Pvt Ltd to M/s KNk Construction Pvt Ltd through CEMS portal during march 2021 along with a copy of Memorandum of Association & Articles of association, Annexure VI-A & B As per ER 2020, death certificate of KNK Swamy who had demised on 11/7/2020, Certificate of incorporation for the change in name from KNK Nexgen Constructions Pvt Ltd to KNK Construction Pvt Ltd., dated 18/5/2017 issued by Registrar of Companies, Bengaluru, PAN & GST certificate in the name of KNK Constructions Pvt Ltd issued on 24/8/2017 & 15/02/2018 respectively to the SDG, PR for accord of in- principle approval for change in name as per annexure VI-B. 3. Whereas, now vide M/s KNK Nexgen Construction Pvt Ltd's attached documents for obtaining in principle approval for change in name, it is evident from the Certificate of incorporation issued by ROC, PAN card and GST certificate that you have changed the name before according the in principle approval by the Enlistment Authority. Also they have intimated the enlisting authority regarding the change in name after the lapse of 3.5 years. This is clear violation of rules/provisions under Para 9.6 of Enlistment Rule-2020. 4. Since the responsibility to abide by conditions of enlistment lies with M/s KNK Nexgen Construction Pvt Ltd's and it appears that they have failed to comply with the conditions of prevailing Enlistment Rules and Contractor's - 9 - WP No. 9599 of 2022 obligations mentioned therein by changing the name without obtaining in-principle approval and not intimating the change within one month to the competent authority. As such they have made themselves liable for action as per the prevailing Enlistment Rules for not abiding by the conditions. 5. Whereas, a show cause notice regarding change in name without prior approval and why they should not be removed from the approved list of contractor list as per rule 13.7 (c) & (g) of ER 2020 was issued to them as per the advice of the empowered committee met on 18.11.2021, vide this office letter even no.lr.E- 288/2011/ADS(SR)/1229(H) dt 03/12/2021. Show cause notice letter issued to them through speed post and E- mail dated 03.12.2021 ([e-mail]). 6. And whereas M/s KNK Nexgen Construction Pvt Ltd have replied to the Show Cause Notice vide letter No. Nil dt 16/12/2021(received by this office on 20/12/2021) stating that they you have submitted the letter dated 02/11/2017, intimating the change in name of the company to the department \"project working region of CPWD Bangalore, CPWD Mysore & CPWD Chennai Office. Further to the name change all the projects in Bangalore and Mysore Division are corresponding to them with the name KNK Construction Pvt. Ltd. - 10 - WP No. 9599 of 2022 7. The reasons given by M/S KNK Nexgen Construction Pvt Ltd were placed before the empowered committee, who in its meeting met on 16.02.2022. After due deliberations and by considering the facts on records, the empowered committee has found that M/s KNK Nexgen Construction Pvt Ltd has committed a breach of contractor's obligations para 12(c) Enlistment Rules 2020 & recommended for suspension of Contractor from not allowing to participate in CPWD tendering process two years. 8. Whereas as per the condition under para 4 & 5 of the above said Office Order and in terms of Rule 15.0, Rule, 22.0 of Enlistment Rules, 2005 (updated to Enlistment Rules, 2020 as well as 2021), any change in name of the company without prior approval of the enlistment authority will render termination of enlistment status and the name of the contractor/firm liable to be removed from the approved list of enlisted contractors. 9. Now, Therefore, in terms of the provisions contained in para 4 & 5 of the enlistment office order 8(civil)/2015/2177-90 dt 24/08/2015, the Enlistment Authority has ordered for suspension of M/s KNK Nexgen Construction Pvt Ltd., No:19, 33rd A Cross, 11th Main, Jayanagar, 4th T Block, Bangalore-560041 for a period of TWO YEARS from participating in the tender process in CPWD with immediate effect. - 11 - WP No. 9599 of 2022 This is issued with the approval of Spl.DG,Project Region, Chennai.” (Emphasis added) The impugned order notices that the change of name of the first petitioner is communicated only after 3.5 years and observes it to be a clear violation of the Rules / directions as obtaining in Rule 9.6 of the Rules. 9. Rule 9.6 of the Rules 2020, reads as follows: “9.6 : The change in the name of an entity is permissible with the prior approval of the enlistment authority. The application for change in the name shall be made in the form prescribed at Annexure VI. The contractor shall intimate the change in the name of the entity not later than one month of such change along with acknowledgement of noting down of such change in name from the Bank, Income Tax, GST authorities, etc. Failure to do so may result in cancellation of the enlistment.” (Emphasis supplied) Rule 9.6 (supra) mandates that the change of name of an entity is permissible only with prior authority of - 12 - WP No. 9599 of 2022 enlistment and change of name shall be made in the prescribed form i.e., Annexure VI. It is this clause that is invoked to suspend the license of the first petitioner on the ground that the change of name is made without prior approval of the Enlistment Authority. 10. Rules 13.2 and 13.3 of the very same Rules, 2020, reads as follows: “13.2 : The enlistment authority shall initiate disciplinary case against an enlisted contractor either suo moto or on the receipt of a written request from an officer not below the rank of Superintending Engineer, and forward it to the Empowered Committee for consideration. The Empowered Committee shall consider the disciplinary case on the basis of documents, facts and circumstances, shall issue a show cause notice to the contractor and allow him personal hearing if necessary, and forward its recommendations to the enlistment authority. The enlistment authority shall take a decision on the basis of the recommendations of the Empowered Committee. The decision of the enlistment authority shall be final and binding on the contractor. 13.3 Where disciplinary action has been taken against a contractor, the order shall be uploaded immediately on CPWD website so that the field - 13 - WP No. 9599 of 2022 offices have access to the information across the country.” (Emphasis supplied) Rule 13.2 and 13.3 mandates that the Empowered Committee which seeks to initiate disciplinary action against the enlisted contractor, shall consider the documents, facts circumstances, then issue show cause notice to the enlisted contractor, consider the reply from such enlisted contractor and then forward the recommendations to the Enlistment Authority. Later, the Enlistment Authority shall take a decision on the basis of such recommendations of the Empowered Committee. 11. In the case at hand, the show cause notice is issued to the petitioners by respondent No.2 and not by the Empowered Committee. The show cause notice leads to passage of impugned order by respondent No.3. In terms of Rule 13.2 of the Rules, it is the Empowered Committee which would be considering the documents, - 14 - WP No. 9599 of 2022 facts and circumstances, to issue show cause notice to the said contractor, allow him personal hearing and then forward the recommendation for suspension. 12. Learned counsel for the respondents has placed on record the proceedings of the Empowered Committee, insofar it concerns the petitioners, it would read as follows: “3) KNK Nexgen Constructions Pvt Ltd: GIST OF THE CASE a) The agency M/s KNK Nexgen Constructions Pvt Ltd is an enlisted contractor under class I civil category vide order 8 (civil)/2015/2177-90 dt 24/08/2015 valid till 31/3/2018 and automatically renewed upto 31/03/2020 vide OM DG/SE/CM/Enlist.rules/30 dt. 04/10/2017 and further renewed upto 31/12/2021 vide OM.DG/SE/CM/Enlist.rules/Misc/21 dt 29/05/2020 b) The firm KNK Nexgen Constructions Pvt Ltd has submitted an online application through CEMS during March 2021 along with a copy of Memorandum of Association & Articles of association dt 31/3/2006, Annexure VI-A & B as - 15 - WP No. 9599 of 2022 per ER 2020, death certificate of KNK Swamy who was demised on 11.07.2020, Certificate of incorporation for the change in name from KNK Nexgen Constructions Pvt Ltd to KNK Constructions Pvt Ltd, dated 18/5/2017 passed by Registrar of Companies, Bengaluru, PAN & GST certificate in the name of KNK Constructions Pvt Ltd issued on 24/8/2017 & 15/02/2018 respectively to the SDG, PR for accord of in- principle approval for change in status as per annexure VI-B. The case was scrutinized by the O/o SDG, PR, Chennai in line with the rules of enlistment 2020 and observed from the company master data available online at Ministry of Corporate Affairs that the contractor has changed the name from KNK Nexgen Constructions Pvt Ltd to KNK Constructions Pvt Ltd on 18/5/2017 without getting in-principle approval from the enlisting authority and the same was effected in PAN and GST on 24/8/2017 & 15/02/2018 respectively. After 3.5 years of change the company is intimating the change of status. Therefore, the contractor failed to abide the rules of enlistment and hence on 23.03.2021, it has been decided to put the case under empowered committee for taking disciplinary action as per rule 9.6 & 12 (a), (b), (g) of ER 2020. Subsequently the meeting was proposed on 18/02/2021 which couldn’t conduct since CE, Region Chennai was on leave w.e.f. 16/02/2021. Then due to non-availability of CE Chennai the empowered committee has been reconstituted on 03/03/2021 with the CE cum PD, IIT Project Zone, Tirupathi as new chairman. But the meeting could not be - 16 - WP No. 9599 of 2022 conducted due to second wave Covid-19 & imposed lockdown. DELIBERATION MADE BY THE COMMITTEE: The empowered committee considered the matter & deliberated that i. The new name was registered at ROC on 18/05/2017 without getting in principle approval from the enlisting authority attracts the rule 12(e) of ER 2020 & the date of incorporation in PAN and GST is 21/09/2021 without obtaining in-principle approval violates the rule 9.6 of ER 2020. Therefore the empowered committee has recommended to issue a show cause notice to the contractor as per 13.2 under disciplinary action, asking for the reason why he should not be removed from the enlisted contractor list as per rule 13.7 (c) & (g) of ER 2020.” (Emphasis added) The proceedings would nowhere indicate that the first petitioner was even notified. The Empowered Committee scrutinizes the documents that were placed before it, comes to a conclusion that the change of name of the Company is given after 3.5 years and disciplinary action in - 17 - WP No. 9599 of 2022 terms of Rule 9.6 has to be taken against the first petitioner – company, what follows is the impugned order. 13. Therefore, there is blatant violation of Rule 13.2 of the Rules in recommending for suspension of the license of the first petitioner – Company, as the Empowered Committee before recommending has neither scrutinised any documents of the petitioners nor sought any documents from the hands of the enlisted contractor. Unilateral observations are made, observing that it is only after 3.5 years of change of the name of the first petitioner, it is intimated. This is contrary to the records, as the petitioners have produced documents of name change of the first petitioner and its intimation to the competent authority – respondent No.3, way back on 02.11.2017. Respondent No.3 being privy or otherwise to the said change in name can be gathered from the subsequent developments, as well. The first petitioner – Company is awarded with certain contracts not in the - 18 - WP No. 9599 of 2022 name of ‘KNK Nexgen Constructions Pvt. Ltd.’ But in the name of ‘KNK Constructions Pvt. Ltd.’ after 2017. Therefore, the Empowered Committee ought to have looked into all those documents. For looking into all the documents, it ought to have issued a show cause notice to the petitioners, for the petitioners to produce all those documents, that would enable a decision for a recommendations in accordance with law. 14. For the reason that, the procedure adopted by the Empowered Committee is in violation of Rule 13.2 of the Rules, I deem it appropriate to obliterate the impugned order, which is passed on the basis of the said recommendation of the Empowered Committee, as it is by itself is contrary to law and remit the matter back to its hand for a decision afresh. - 19 - WP No. 9599 of 2022 15. For the aforesaid reasons, I pass the following: ORDER i. The petition is allowed in-part. ii. The order dated 28.02.2022, bearing No.007- 2022 in file No.E-288/2011/ADG(SR)/383- 84(H), passed by respondent No.3 - the Special Director General, Central Public Works Department, stands quashed. iii. The matter is remitted back to the hands of the Empowered Committee to issue a show cause notice in terms of Rule 13.2 of the Rules, afford opportunity of personal hearing, if necessary, consider the reply of the petitioners and then pass appropriate orders in accordance with law. Sd/- JUDGE NVJ List No.: 1 Sl No.: 80 "