CASE NO.: Appeal (civil) 1725 of 2004 PETITIONER: DELHI DEVELOPMENT AUTHORITY AND ANR. RESPONDENT: UEE ELECTRICAL ENGG. (P) LTD. AND ANR. DATE OF JUDGMENT: 19/03/2004 BENCH: S. RAJENDRA BABU & ARIJIT PASAYAT & G.P. MATHUR JUDGMENT:
JUDGMENT
2004(3) SCR 286
The Judgment of the Court was delivered by
ARIJIT PASAYAT, J. Leave granted in SLP (C) No. 23987/2002.
The Delhi Development Authority (herein after referred to as the “DDA”)
calls in question the legality of the judgment rendered by a Division Bench
of the Delhi High Court whereby it has held that the act of the appellant
in not awarding contract to the respondent No. 1 M/s UEE Electricals Engg.
P. Ltd. was not in accordance with law. Though the contract awarded to the
second respondent was not nullified, it was held by the High Court that the
first respondent who was deprived of its right was entitled to costs to be
paid by the appellant. Liberty was also granted to the respondent No.l to
file a suit for damages if it so thought appropriate.
Background facts as projected by the appellant DDA which need to be noticed
are as follows:
In March 2001, tenders were invited by the appellant for the supply and
installation of Clear Water Boosting Pumping Station at Command Tank No. 1
at Sector-7. Clause 10 of the Tender Notice indicated that the final
decision, with respect to acceptance of the tender, rests with the Chief
Engineer (Electrical) and there was no compulsion to accept the lowest
tender. On 21.5.2001 Ashok Sehgal – a Director of the respondent no. 1 –
company went to the Division Office of the Authority, where one Mr. V.K.
Kapoor was acting as the Assistant Engineer (Electrical), for clearance of
his earlier dues. Aforesaid Mr. Ashok Sehgal insisted that the files should
be handed over to him which was not done by Mr. V.K. Kapoor. Since the
files were not handed over, Mr. Ashok Sehgal physically assaulted Mr. V.K.
Kapoor with a sharp weapon which caused an injury near the right eye. At
about 3.45 P.M., an FIR was lodged by Mr. V.K. Kapoor for alleged
commission of offences punishable under Sections 186, 353, and 332 of the
Indian Penal Code, 1860 (in short the “IPC”) before the Dabri Police
Station, Delhi. The matter was also referred for enquiry to the Executive
Engineer (Headquarter) of DDA. Mr. Ashok Sehgal submitted a letter to the
Commissioner of Police at about 8 P.M. on the same date making allegations
against officials of DDA. On 19.6.2001 Enquiry Officer submitted a report
inter alia observing that Mr. V.K. Kapoor’s version was correct and that
the allegations made by Mr. Ashok Sehgal appear to be in retaliation. It
was found that Mr. Ashok Sehgal had tried to support his case by producing
a medical certificate issued by a Private Poly Clinic which was not valid
for a Medico-legal case. The further allegation that Mr. V.K. Kapoor
demanded bribe from Mr. Ashok Sehgal was found to be incorrect. The
allegation that Mr. Ashok Sehgal was physically beaten up by Mr. V.K.
Kapoor was also found to be not correct in view of the statements given by
some eyewitnesses. It was, therefore, recommended that necessary action
should be taken by the competent authority.
On 23.7.2001 the price bid, so far as the tender in question, was opened
and the respondent no. 1 was declared to be a successful bidder. However,
on 28.8.2001 the Project Manager (Electrical) wrote to the Secretary,
Contractor Registration Board requesting for appropriate action against the
respondent No. 1- company in the light of the Enquiry Report referred to
above. It appears that subsequently action was taken by the Contractor
Registration Board in terms of the Rule 22.3(k) of the Enlistment Rules of
DDA.
On 25.10.2001 the Works Advisory Board decided that the tender of
respondent No. 1 should not be considered since show cause notice was being
issued to it. Therefore, other tenderers were called for negotiations to
lower the rates offered. It was also decided that in case the rates were
not lowered, fresh tender was to be issued.
On 8.11.2001, after consideration of the lowered rates offered the work was
awarded to respondent no. 2 (respondent No. 3 in the writ petition before
the High Court).
Show cause notice was issued to respondent No. 1 on 5.12.2001 requiring it
to show cause why it should not be blacklisted by the appellant-Authority.
Reply to the show cause notice was submitted on 13.12.2001. A Writ Petition
was filed by the respondent No. 1 questioning award of the contract to
respondent no. 2. By the impugned judgment, the High Court, inter alia,
held that the Director of the Company and the Company itself are two
separate legal entities and even if any unbecoming act was done by the
Director, that should not stand in the way of the contract being awarded to
the respondent No. 1- company. Therefore the Writ Application was disposed
of with the directions as noted above.
It appears that subsequently on 14.8.2002 the Contractor Registration Board
debarred the respondent No. 1 – company and its Director for a period of
five years. A Writ Petition was filed before the Delhi High Court
challenging the order passed by the Contractor Registration Board. Learned
Single Judge quashed the order of the Contractor Registration Board keeping
in view of the impugned judgment dated 12.7.2002. However, liberty was
given to the Appellant-Authority to issue a detailed and reasoned order. It
appears that subsequently on 3.1.2003 a fresh order, debarring the
respondent no. 1 – company and its Director for a period of five years, has
been passed. That is the subject matter of challenge in WP(C) 156 of 2003.
In support of the appeal, learned counsel for the appellant – DDA submitted
that the approach of the High Court is clearly erroneous. The scope of
judicial review of administrative action is very limited. Unless there is a
flaw in the decision-making process, there is no scope of any interference.
In the instant case all the relevant aspects were taken by the Authority
into account and thereafter the tender submitted by the respondent No. 1 –
company was rejected. The High Court proceeded on the erroneous premises by
observing that no action for blacklisting the respondent No.l – company was
taken. This is factually incorrect. In fact the Works Advisory Board took
note of the fact that already recommendation had been made by the
Contractor Registration Board in the matter of blacklisting the respondent
No. 1 – company. The High Court proceeded is if there were mala fides
involved and that the action of the Director of respondent No. 1- company
in assaulting an employee of the Appellant-Authority and causing serious
injuries was not sufficient to take action against the respondent No. 1 –
Company. Respondent No. 1 -Company being an incorporate body who acts
through its Directors, when the act of a Director of the Company itself was
found to be objectionable, attracting criminal action, there was nothing
wrong in the Appellant-Authority deciding not to accept the tender offered
by the respondent No.l -Company. The High Court was not justified in
interfering with the action taken.
Per contra, learned counsel appearing for the respondent No. 1 -Company
submitted that it has been rightly observed by the High Court that the
respondent No. 1 – Company and its Directors are separate legal entities.
Even if it is accepted for the sake of argument that a director of a
company had done some objectionable act, that could not have been
considered as a ground to refuse acceptance of the tender submitted by the
respondent No. 1 – Company particularly when the prices offered were
lowest.
One can conveniently classify under three heads the grounds on which
administrative action is subject to control by judicial review. The first
ground is “illegality” the second “irrationality”, and the third
“procedural impropriety”. These principles were highlighted by Lord Diplock
in Council of Civil Unions v. Minister for the Civil Service, [1984] 3
A1I.ER. 935, (commonly known as CCSU Case).
Courts are slow to interfere in matters relating to administrative
functions unless decision is tainted by any vuinerability such as, lack of
fairness in procedure, illegality and irrationality. Whether action falls
within any of the categories has to be established. Mere assertion in that
regard would not be sufficient.
The famous case Associated Provincial Picture Houses Ltd. v. Wednesbury
Corpn. (KB at p. 229: All ER p. 682) commonly known as ‘The Wednesbury’s
case” is treated as the landmark so far as laying down various basic
principles relating to judicial review of administrative or statutory
direction.
The law is settled that in considering challenge to administrative
decisions courts will not interfere as if they are sitting in appeal over
the decision.
These principles have been noted in aforesaid terms in Union of India and
Anr. v. G. Ganayutham, [1997] 7 SCC 463 and Indian Railway Construction Co.
Ltd. v. Ajay Kumar, [2003] 4 SCC 579. In essence, the test is to see
whether there is any infirmity in the decision making process and not in
the decision itself.
Doubtless, he who seeks to invalidate or nullify any act or order must
establish the charge of bad faith, an abuse or a misuse by the authority of
its powers. While the indirect motive or purpose, or bad faith or personal
ill-will is not to be held established except on clear proof thereof, it is
obviously difficult to establish the state of a man’s mind, for that is
what the employee has to establish in this case, though this may sometimes
be done. The difficulty is not lessened when one has to establish that a
person apparently acting on the legitimate exercise of power has, in fact,
been acting mala fide in the sense of pursuing an illegitimate aim. It is
not the law that mala fide in the sense of improper motive should be
established only by direct evidence. But it must be discernible from the
order impugned or must be shown from the established surrounding factors
which preceded the order. If bad faith would vitiate the order, the same
can, in our opinion, be deduced as a reasonable and inescapable inference
from proved facts. (See S. Pratap Singh v. The State of Punjab, [1964] 4
SCR 733. It cannot be overlooked that burden of establishing mala fides is
very heavy on the person who alleges it. The allegations of mala fides are
often more easily made than proved, and the very seriousness of such
allegations demands proof of a high order of credibility. As noted by this
Court in E.P. Royappa v. State of Tamil Nadu and Anr., AIR, (1974) SC 555.
Though in a legalistic sense an incorporated body like a company and its
Directors are separate entities for certain purposes, in many companies
they act as alter ego. For the acts of the Director, the concept of
vicarious and constructive liabilities operates so far as the company is
concerned. The acts of the company are done primarily through the Directors
or the employees. In a case like the one at hand, the stand of respondent
No. 1 – Company that even if one of its Directors has assaulted an employee
of the appellant-Authority, yet it is of no consequence when deciding the
tender, application. The strained relationship between a contractor and the
contractee can have its implications in working out the contract.
This is not a case where the appellant-Authority can be said to have acted
in a mala fide manner or with oblique motives. If the Authority felt that
in view of the background facts, it would be undesirable to accept the
tender, the same is not open to judicial review in the absence of any
proved mala fide or irrationality. The impugned judgment of the High Court
is indefensible and is set aside. The appeal is allowed. Costs made easy.
W.P.(C) No.156 of 2003 has been filed by the Company questioning the
decision taken by the Authority to blacklisting it.
Learned counsel for the writ petitioner submitted that the petition was
filed in this Court because of the pendency of the SLP. Since we have
separately dealt with the SLP, we do not think it to be a fit case where
the writ petition can be entertained directly in this Court. The Writ
Petition is transferred to the High Court, so that it can be registered as
a Writ Petition to be dealt with and disposed of in accordance with law.
Ordered accordingly.