M/S.NSURE RELIABLE POWER SOLUTIONS PVT. LTD., V. HUBLI ELECTRICITY SUPPLY COMPANY LTD.,

WP/114450/2019

AI Insights

The case revolves around a dispute concerning the cancellation of a letter of intent issued to Nsure Reliable Power Solutions Pvt. Ltd. by the Hubli Electricity Supply Company Ltd. (HESCOM) for a tender related to the Development and Facility Service and Maintenance Project for Hubballi, Dharwad, and Belagavi City. Initially, the petitioner was declared a successful bidder and a letter of intent was issued. However, the letter of intent was later cancelled by respondent No.2, citing non-submission of a performance bank guarantee and non-execution of the contract within the specified time, which the petitioner contested as factually incorrect. The court found that the cancellation was arbitrary and in violation of the principles of natural justice and the Karnataka Transparency in Public Procurement Act, 1999.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 764870 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 19-05-2021
• Assessment Year: misc
• Other Referred Cases: Mohindhr Singh Gill and another \\u2013vs- Chief Election Commissioner, New Delhi and others, Sahara India (Firm) Lucknow Vs The Commissioner of Income Tax Central-1 and another, JVPD Scheme Welfare Trust V Chief Officer, Maharasthra Housing & Area Development Authority & Others
• Laws Referred To: Articles 226 and 227 of the Constitution of India, Karnataka Transparency in Public Procurement Act, 1999
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: BHUSHAN KULKARNI; B S KAMATE
• Assessee Lawyers: PHANEENDRA
• Keywords: Certiorari; Certiorari; Contract agreement; Letter of Intent; Performance Bank Guarantee; Writ petition; Tender cancellation
• Section: 14

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 19th DAY OF MAY, 2021 BEFORE THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR W.P No.114450/2019 (GM – TEN) BETWEEN M/s. Nsure Reliable Power Solutions Pvt. Ltd. No.606, J Towers, Binnyston Garden K P Agrahara, P.O. Magadi Main Road Bengaluru-560023, by its Authorized Signatory, Basavaraj s/o Adiveppa Tirlapur Age 40 years, Occ: Project Coordinator r/o Binkadakatti, Tq. & Dist: Gadag. ...Petitioner (By Sri Phaneendra, Sr. Advocate for Sri K.L. Patil and Sri S.S. Beturmath, Advocates) A N D 1. Hubli Electricity Supply Company Ltd., Corporate Office, P B road, Navanagar Hubballi – 580 025, by its Managing Director. 2. Superintending Engineer (Ele.) PMC Corporate Office, HESCOM P B Road, Navanagar, Hubballi – 580 025. ... Respondents (By Sri Bhushan B Kulkarni and Sri B S Kamate, Advocates) 2 This writ petition is filed under Articles 226 and 227 of the Constitution of India praying to issue a writ in the nature of certiorari or any other appropriate writ, order or direction quashing order No.HESCOM/SEE(PMC)/EEP3/DBFOT/1984/(POL) /TENDER/CANCEL/2018/19/CYS-525 dated 18.5.2018 by the respondent No.2 vide Annexure-J and etc.,. This writ petition having been heard and reserved for orders on 23.04.2021, coming on for pronouncement this day, the Court made the following: ORDER This writ petition is filed challenging the order dated 18.5.2018 passed by respondent No.2 at Annexure-J wherein the tender was quoted by respondent No.2 and also the letter of intent issued in favour of petitioner was cancelled. 2. Pursuant to the tender notification published by respondents inviting bids for selection of Development and Facility and Service and Maintenance Project for Hubballi, Dharwad and Belagavi City, petitioner participated in the tender process and was declared as successful bidder. 3. After negotiation, respondent No.1 issued a letter of intent to the petitioner to notify the intention of award the work with upfront payment of Rs.57.62 crores without taxes. 3 Petitioner by communication dated 14.3.2018 accepted the letter of intent issued by respondent No.1 and agreed to abide by the terms and conditions imposed in the letter of intent. Pursuant to the letter of intent, a contract agreement between the petitioner and respondent was signed on 28.3.2018 at Annexure-G and work award was also issued in favour of the petitioner by respondents on 28.3.2018 at Annexure-H. Petitioner states that pursuant to the contract agreement executed in its favour and work award issued in its favour, petitioner has incurred expenditure for executing tender work and also made agreement for various tender and also prepared design. However, respondent No.2 unilaterally cancelled the intent. Hence, this writ petition. 4. Sri K.N.Phanindra, learned Senior Counsel for the learned counsel appearing for the petitioner would submit that the reasons assigned in the impugned communication cancelling the letter of intent on the ground that the petitioner has not executed contract agreement and not submitted performance bank guarantee within the specified time is factually incorrect, which is evident from the fact that contract agreement was 4 executed in favour of petitioner and also detailed work award was issued on 28.3.2018 in favour of petitioner. He further submits that when the impugned order was passed on certain grounds its validity must be judged by the reason so mentioned and cannot be supplemented by fresh reasons in the shape of statement of objections or otherwise. Hence he submits that the impugned communication issued by respondent No.2 cancelling the letter of intent unilaterally is contrary to Section 14 of the Karnataka Transparency in Public Procurement Act, 1999. In support of his submission, he has placed reliance on the following decisions of the Apex Court: 1) Mohindhr Singh Gill and another –vs- Chief Election Commissioner, New Delhi and others reported in (1978) 1 SCC 405. 2) Sahara India (Firm) Lucknow Vs The Commissioner of Income Tax Central-1 and another reported in (2008) 14 SCC 151 . 3) JVPD Scheme Welfare Trust V Chief Officer, Maharasthra Housing & Area Development Authority & Others reported in (2019) 11 SCC 361. 5 5. Learned counsel for the respondents would submit that the petitioner having not furnished performance bank guarantee within the specified time of fifteen days from the date of issuance of letter of intent, respondents are justified in cancelling the letter of intent. He further submits that the bank guarantee furnished by the petitioner was not valid till 26.1.2018 and not in compliance of contract. Hence, he submits that the respondents cancelled the letter of intent. Learned counsel for the respondents would further submit that in response to the approval seeking for the revised rates, the Government of Karnataka has sought opinion of the Finance Department and the Finance Department has observed as follows: “a) The Schedule of Requirement pertaining to the present proposal is considerably changed when compared with the Original Tender and the scope/requirement/quantity of the tender are also changed. b) As the estimated cost of the tender is reduced and the scope of the work is Defendant-scoped, the Qualifying Requirements i.e. Turnover, work-Experience, Finance Capability etc., will also change sequentially and the cost of EMD will also be changed (reduced). Asper the changes made in Tender, healthy/competitive rates would have been arrived with more numbers of participants. 6 c) As per KTPP Act and Tender Conditions i.e. Clause No.27 of IFB, there is a provision of making only plus or minus 25% changes in the award. d) Citing the above conditions it is instructed that: (i) Under the circumstances it is appropriate to float a fresh tender and also to undertake a Pilot project in any one of the Section Office in Urban area based on the directions issued by Hon’ble KERC vide letter dated 01.06.2017.” Hence, the respondents considering the communication dated 23.04.2018 issued by the Government at Annexure-R3 resolved to cancel the tender and also the letter of intent issued in favour of the petitioner. Hence, he submits that the cancellation of letter of intent issued in favour of the petitioner cannot be said to be illegal since the letter of intent was issued subject to approval by Government of Karnataka as specified in the letter of intent. 6. I have examined the submissions made by the learned counsel for the parties. 7. The invitation of bids and participation of petitioner in the tender process and petitioner being declared as successful bidder is not in dispute. It is also not in dispute that the 7 petitioner was issued with letter of intent by Respondent notifying the intention to award work in favour of petitioner subject to acceptance by petitioner. Petitioner accepted letter of intent by communication dated 14.3.2018 and also contract agreement was executed in favour of petitioner and also detailed work order was issued to the petitioner respectively on 28.3.2018. The letter of intent was issued on 7.3.2018 and the same was received by the petitioner on 14.3.2018. The performance bank guarantee was furnished by petitioner on 17.3.2018 and contract agreement was executed on 27.3.2018 from the date of issuance of letter of intent. The respondents acted upon the bank guarantee furnished by the petitioner and also the contract agreement executed in favour of petitioner by issuing the detailed work award on 28.3.2018. When the things stood thus, the 2nd respondent unilaterally cancelled the letter of intent on the premise that the petitioner has not furnished the bank guarantee and executed contract agreement after fifteen days as specified in the letter of intent. The reasons assigned by respondent in cancelling letter of intent is on the face of it illegal and arbitrary since the petitioner had furnished bank guarantee 8 and executed contract work agreement within fifteen days as specified in the letter of intent. 8. The respondents in its statement of objections has taken up a defence that in the meeting of Board of Directors held on 21.7.2018 after considering the opinion of Government of India has resolved to cancel the letter of intent. The only reason assigned for cancelling the letter of intent is that the petitioner has not furnished bank guarantee and executed the contract agreement within fifteen days and due to non-approval of the project by government of Karnataka. The Apex Court in the decisions relied upon by the petitioner (supra) has held that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. In the instant case, the impugned communication issued by respondent No.2 which on the face of it is illegal and cannot be validated by additional grounds later brought out. Hence, the 9 submission of the learned counsel for the respondents that the letter of intent was cancelled on the ground that the Government of Karnataka has not approved the project which was one of the conditions pre-requisite for issuing the letter of intent in favour of petitioner is not acceptable. 9. Admittedly, the impugned communication was issued by respondent No.2 cancelling the letter of intent executed in favour of petitioner unilaterally. The Apex Court in the case of Sahara India (Firm), Lucknow –vs- Commissioner of Income Tax, Central-I and another reported in (2008) 14 SCC 151 has held that rules of natural justice would apply only to judicial or not to an administrative order or decision in the matters involving civil consequences. In the instant case, the impugned communication was issued unilaterally cancelling the letter of intent. The right of petitioner is adversely affected because of the cancellation of letter of intent. The impugned communication issued by respondent No.2 is in violation of principles of natural justice and the same is not sustainable in law. 10 10. Section 14 of the Karnataka Transparency in Public Procurement Act, 1999, specifies that the Tender Accepting Authority may at any time before passing an order of acceptance under section 13 reject all the tenders on the ground of changes in the scope of procurement etc. In the instant case, letter of intent was issued subject to approval of project by the Government of India. However, after issuing the letter of intent, respondents have not only accepted the letter of intent, but also executed contract agreement in favour of petitioner and also detailed work award in favour of the Petitioner. Having accepted contract agreement and issued detailed work award in favour of petitioner, respondents are prohibited from cancelling the letter of intent in view of Section 14 of the Act, which specifies that tender can be rejected only before passing an order of acceptance under Section 13 of the Act. Respondents having accepted the tender by executing the contract agreement and also issuing detailed work award, the cancellation of letter of intent on the ground stated in the impugned communication and also the ground stated in the statement of objection is contrary to Section 14 of the Act. 11 11. Petitioner has challenged the impugned communication dated 18.5.2018 and the present writ petition is filed on 3.10.2019. Immediately after the impugned communication was issued by respondent No.2, petitioner has represented with the respondent No.1 on 23.7.2019 to revoke the cancellation of letter of intent and allow the petitioner to execute the project. At para-13 of the memorandum of writ petition, petitioner has stated that the representative of the petitioner has approached the respondents personally and requested them to withdraw the impugned order, for which the respondents went on assuring the petitioner that they will do the needful. But when they failed to perform their duty conferred on them, the petitioner submitted a detailed reply dated 23.7.2019 stating that petitioner has furnished bank guarantee within fifteen days as specified in the letter of intent and also executed contract agreement within fifteen days as specified in the letter of intent. Hence, there was no breach of any conditions in the letter of intent. It is also not in dispute that till today, respondents have not invited for fresh bids for implementing the project in question. No prejudice will be caused to the 12 respondents if delay is condoned in filing the writ petition since the respondents are not responsible for any of the cost escalation arising, if any, during the period of contract as provided in Clause 14 of the letter of intent. Petitioner intends to implement the project, the same has to be completed as per the terms and conditions of the contract by the petitioner. Hence, the submission of learned counsel for respondents that the writ petition requires to be dismissed only on the ground of delay and laches is not acceptable. 12. For the aforesaid discussions, the impugned communication issued by respondent No.2 is held to be illegal and in violation of Articles 14 of the Constitution of India. Accordingly, I pass the following: ORDER i) Writ petition stands allowed. ii) The impugned communication dated 18.5.2018 at Annexure-J issued by respondent No.2 is hereby quashed; 13 iii) Respondent No.2 is directed to permit the Petitioner to execute the project in terms of contract agreement at Annexure-G & Detailed Work Award at Annexure-H within six weeks from the date of receipt of copy of this order. iv) Liberty is reserved with respondents so as to revoke the letter of intent/contract agreement executed in favour of petitioner strictly in accordance with law. Sd/- JUDGE Bkm "