JUDGMENT
Markandeya Katju, C.J.
Page 1103
1. This writ appeal has been filed against the impugned judgment of the learned Single Judge dated 30.7.2004.
2. Heard learned counsels for the parties and perused the record.
3. The facts of the case have been set up in detail in the impugned judgment of the learned Single Judge and hence we are not repeating the same except where necessary.
4. The writ Petitioner(respondent herein) is a company registered under the Indian Companies Act, 1956. The Appellant (respondent in the writ petition) invited tenders for the infrastructure works for supply and installation of construction water system and operation and maintenance of construction and drinking water system at its Paradip Refinery. Petitioner’s tender was accepted and work order in respect of jobs was issued in favor of the petitioner. A true copy of the letter of acceptance dated 30.11.2000 is Annexure P2 to the writ petition.
5. Pursuant thereof, two agreements dated 18.1.2001 were executed between the parties and a copy of one such agreement relating to the main contract is Annexure P3.
6. It is alleged in paragraph 4 of the writ petition that the petitioner started work in right earnest. However, it is alleged that various delays, breaches and inactions on the part of the respondent (appellant in this appeal) prevented the petitioner from successfully completing the Page 1104 work. Despite this, the petitioner was able to carry out the work of the value of approximately Rs. 7.9 crores. It is alleged that the respondent was not interested in completing the work for reasons best known to itself and abandoned the work, but somehow to shift blame it made the petitioner a scapegoat and took up the bogey of slow progress and issued a show cause notice to it asking why the contract should not be terminated. The respondent encashed the bank guarantee.
7. Faced with this situation, the petitioner invoked the arbitration clause. Since the respondent was seeking to limit the terms of the reference and was declining to refer all the claims of the petitioner, the petitioner filed a petition in this Court being application No. 35/2003. This Court vide order dated 17.3.2003 allowed the petition and directed the respondent to refer the petitioner’s claim to arbitration vide Annexure P5. The Arbitrator entered upon the reference and a copy of the notice issued by him is Annexure P6 to the writ petition, and a true copy of the first proceeding held by him on 01.05.2003 is Annexure P7. Thus, it is alleged that the Arbitrator is seized of the complete matter and the issues which are directly involved in the said arbitration case e.g. whether there was breach of the contract, who failed to perform the contract, whether the petitioner abandoned the site or the respondent abandoned the project, whether the encashment of the bank guarantee is illegal and what are the amounts due to the petitioner, etc.
8. The respondent terminated the contract vide letter dated 29.10.2002, Annexure P11 to the writ petition. It is alleged that this was done in a malafide manner. Thereafter the respondent issued a show-cause notice dated 17.1.2003 calling upon the petitioner to show cause why it should not be placed on the ‘holiday list’ and be not debarred from entering into the contract. A true copy of the said notice is Annexure P12.
9. The petitioner vide letter dated 18.1.2003 replied to the said notice refuting the allegations and also requested the respondent to refer the matter to the Arbitrator. A true copy of the said letter is Annexure P13. However, the respondent vide letter dated 23.1.2003 rejected the request of the petitioner for referring the matter to arbitration. Thereafter by order dated 10.4.2003, the respondent placed the petitioner on the ‘holiday list’ vide Annexure P17. It is alleged by the petitioner that the said act of the respondent is illegal, malafide and arbitrary. The petitioner asked the respondent to withdraw the said letter but to no avail. Hence the writ petition.
10. The impugned order dated 10.4.2003 states as follows:-
No. PJ/PDRP/59(IG)
To
M/s SPS Engineering Ltd.
301-310, Navketan,
Central Avenue Chembur
Mumbai-400071.
Attn: Mr. Amit Kumar Das, General Manager (F & A)
Page 1105
Sub: Holiday Listing / De-listing of Vendors/Contractors Intimation of Placement of Holiday List.
Dear Sir,
This is further to our Show Cause Notice to you dated 17.1.2003 and 23.1.2003.
Your reply to the Show Cause Notice (and the documents and documentary evidence submitted in support of your reply) has been duly considered.
After considering the allegations made in the Show Cause Notice/Your reply to the Show Cause Notice (and document and documentary evidence furnished in support thereof), it has been decided that you be placed on Holiday List and debarred from entering into any contracts with Indian Oil Corporation Ltd. for a period of (Three) years effective from the date hereof.
Yours faithfully
(G. Dasgupta)
Deputy General Manager (PJ)
11. A perusal of the said order shows no reason at all have been given therein.
12. A counter-affidavit was filed in the writ petition by the respondent and we have perused the same. It is alleged in paragraph II (c) that from the inception of the work under the said contract, the petitioner displayed a total lack of commitment towards the execution of the said contract and miserably failed to honour its contractual obligations or to deploy the management resources, finance, man-power, equipment or materials required to undertake or complete the work. In spite of repeated reminders by the respondent the petitioner failed to improve in any of these aspects. Even after joint meetings between the petitioner’s representatives and the respondent the petitioner failed to improve his work, with the result that by November 16, 2001, by which date the work was to have been completed and the construction of water supply and distribution system should have been ready, the petitioner had completed only 16% of the said work and thereafter it abandoned the work in February 2002. Since, the petitioner failed to resume work, the respondent was compelled to invoke Clause 7.0.1.0 of the General Conditions of Contract and to terminate the said contract.
13. It is alleged that bearing in mind the vital importance of the contract for the construction of Paradip Refinery and the petitioner’s abysmal lack of commitment and abandonment of the work in spite of this knowledge, the respondent formed an opinion that the petitioner was not a fit person to have future contracts with the respondent. Accordingly a show-cause notice dated 17.1.2003 was issued to the petitioner asking him to show cause why he be not placed on the Holiday List and be not debarred from entering into any contracts with the respondent and be not de-listed from the list of approved Vendors/Contractors of the respondent. By letter dated 23.1.2003, the respondent communicated its decision of placing the petitioner on Holiday List. However, in view of the High Court order dated 23.5.2003, Page 1106 the respondent has since issued a letter dated 23.6.2003 keeping in abeyance the action proposed against the petitioner till further directions of the Court. It is denied that there was no illegality, malafides or arbitraries.
14. A rejoinder affidavit was filed by the petitioner and we have perused the same.
15. It is may be noted that in response to the show-cause notice dated 17.1.2003 issued by the respondent asking the petitioner to show cause why it be not placed in the holiday list, the petitioner gave a reply on 18.1.2003 in which he gave his version. The relevant part of the petitioner’s reply reads as follows:-
We also deny that we ever failed to perform contract and we also deny that we ever abandoned the Site or the contract. On the contrary the Site has not been cleared or allowed to cleared so far. The contract could not be performed because you have abandoned the same as was published in the newspapers also and particularly because of the conditions locally prevailing in Orissa where the said project was undertaken by you and entrusted to us for being carried out and which we did. In several newspapers it was notified to the public that maximum number of projects had been shelved including the Paradip Refinery Project of Indian Oil Corporation Ltd. indicating that the said unit was a new unit and the estimated cost was Rs. 8,312 crores and the same was stalled on 25th June 2002. It was notified not only in Economic Times of 27th December 2002 but also in Times of India and other papers. It obviously shows therefore that the project was abandoned by you for reasons reserved to you and not because of any failure on our part. The allegations therefore made by you in said so called show cause notice are uncalled for, unwarranted and also unfounded. It only reflects your arbitrary attitude against us for reasons reserved to you or your officers. However, if the matter is referred to arbitration all factors shall be clarified and justice and truth shall be met to prevail on whichever side it lies.
16. The learned Single Judge in the impugned judgment held that when the entire matter was pending before the Arbitrator there was no need to have proceeded with the issue of placing the petitioner on the ‘holiday list’ with the undue haste. We agree with this reasoning. When the matter was subject matter of arbitration, the respondent should have awaited the decision of the Arbitrator before taking such a decision in a hurry.
17. Apart from that, a perusal of the impugned order dated 10.04.2003 shows that no reasons have been recorded at all therein.
18. It is true that the show-cause notice dated 17.1.2003, copy of which is Annexure P12 to the writ petition, referred to the reasons mentioned in the letter of the corporation dated 29.10.2002 which sets out the reasons. However, in our opinion setting out reason in a show-cause is not sufficient. After receiving the notice the petitioner gave a detailed reply to the same vide letter dated 18.1.2003 stating that it had not failed to perform the contract nor had it abandoned the same, but on the contrary it was the corporation which had not cleared the site nor allowed the petitioner to clear the site, and the contract could not be performed because the corporation abandoned the same and also because of the conditions locally Page 1107 prevailing in Orissa. In several newspapers, it was notified to the public that the maximum number of projects have been shelved including Paradip Refinery of the respondent corporation. This was notified not only in the Economic Times 2002, but also The Times of India and other papers that showed that the project was abandoned by the respondent not by the petitioner.
19. Since the writ petitioner had given its explanation to the show-cause notice it was incumbent on the respondent to deal with these explanations in the order dated 10.4.2003, but that has not been done.
20. All that has been said in the order dated 10.4.2003 is that after considering the allegations in the show-cause notice and the petitioner’s reply it has been decided to place the petitioner on ‘holiday list’ and debar him from contracts with the appellant for three years.
21. It is well settled that natural justice requires reasons to be given vide S.N. Mukherjee v. Union of India ; Union of India v. M.L. Capoor and Ors. and; Veekay Connectors (P) Ltd. v. National Small Industries Corporation Ltd. .
22. We agree with the learned counsel for the appellant that a personal hearing was not necessary. It was held by the Supreme Court in Grasons Pharmaceuticals (P) Ltd. Pharmaceuticals Pvt. Ltd. and Anr. v. State of U.P. and Ors. , that in a case of black-listing giving of show-cause notice and considering the reply of the petitioner was sufficient compliance of natural justice. As held in Union of India v. Jesus Sales Corporation , the Court cannot insist that under all circumstances personal hearing has to be afforded. No doubt to comply with principles of natural justice, an opportunity has to be given before an adverse order is passed. However, this does not mean that in all circumstances a personal hearing, i.e., a hearing in the physical presence of the party, taking evidence in his presence and giving him opportunity of cross-examination, etc. must be given. When a show-cause notice is given and the reply is received and is considered that is also a hearing, though not a personal hearing, but this may be sufficient compliance of natural justice.
23. The same view was taken by the Supreme Court in M.P. Industries Ltd. v. Union of India and Ors. , Union of India v. Jyoti Prakash Mitter ; Shri Krishna Das Tikara v. State Govt. of Madhya Page 1108 Pradesh and ; J.A. Naiksatam v. Prothonotary & Senior Master , etc.
24. However, in view of the fact that the order impugned in the writ petition does not disclose any reason in our opinion it is bad in law.
25. As held by the Constitution Bench judgment of the Supreme Court in S.N. Mukherjee’s case (supra) (vide paragraphs 34-35):
The decisions of this Court referred to above indicate that with regard to the requirement to record reasons the approach of this Court is more in line with that of the American Courts. An important consideration which has weighed with the Court for holding that an administrative authority exercising quasi-judicial functions must record the reasons for its decision, is that such a decision is subject to the appellate jurisdiction of this Court under Article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under Article 227 of the Constitution and that the reasons, if recorded, would enable this Court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the Court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimize chances of arbitrariness in decision-making. In this regard a distinction has been drawn between ordinary Courts of law and tribunals and authorities exercising judicial functions on the ground that a Judge is trained to look at things objectively uninfluenced by considerations of policy or expediency whereas an executive officer generally looks at things from the stand point of policy and expediency.
Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court, in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective Page 1109 of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a Court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.
26 .In the above decision the Supreme Court has extensively dealt with the development of administrative law and the principle of the requirement to record reasons.
27. In this connection, it may be mentioned that earlier there were only two rules of natural justice viz:
(i) Giving opportunity of hearing ( audi alteram partem)
(ii) the rule against bias.
28. However, in recent times a third rule of natural justice has been developed by courts all over the world, namely, the requirement to give reasons in the order affecting rights or liabilities.
29. The above decision has been followed in a series of decisions of the Supreme Court subsequently, the latest one being State of Orissa v. Dhaniram Lohar wherein the Supreme Court observed (vide paras 7 and 8):
Reason is the heartbeat of every conclusion, and without the same it becomes lifeless.
Even in respect of administrative orders Lord Denning M.R. in Breen v. Amalgamated Engg. Union (1971) 1 All ER 1148 : (1971) 2 QB 175 : (1971) 2 WLR 742 (CA) observed: “The giving of reasons is one of the fundamental of good administration.” In Alexander Machinery (Dudley) Ltd. v. Crabtree 1974 ICR 120 (NIRC) it was observed: “Failure to give reasons amounts to denial of justice.” “Reasons are live-links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at.” Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the “inscrutable face of the sphinx”, it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary Page 1110 requirements of natual justice is spelling out reasons for the order made; in other words, a speaking-out. The ‘inscrutable face of the sphinx’ is ordinarily incongruous with a judicial or quasi-judicial performance.
30. Since reasons have not been given in the order dated 10.4.2003 it has to be declared as illegal.
31. The learned counsel for the appellant has,however, urged that the reasons are contained in the letter of the corporation to the writ petitioner dated 29.1.2002, Annexure P11 to the writ petition.
32. It is well settled that the impugned order cannot be supplemented by additional material either in the form of an affidavit or otherwise vide Mohinder Singh v. Chief Election Commissioner ; State Govt. Houseless Harijan Employees Association v. State of Karnataka (2001) 1 SCC 610 (Para 49) : AIR 2001 SC 437, Para 48; Pavanendra Naraian Verma v. SGPGI of Medical Science ; Union of India v. GTC Industries , etc. In our opinion, reasons must be contained in the order under challenge, and mere existence of reasons in the show-cause notice, or any material referred to in the show-cause notice, is not sufficient. In our opinion, the authority concerned must, at least in brief, deal in the impugned order with the explanation given in the reply to the show-cause notice. This in our opinion is even more necessary where a personal hearing is not being given. The authority concerned must discuss the explanation given in the reply, and give its reasons for holding that the explanation is not satisfactory. In the present case all that has not been done.
33. For the reasons given above, there is no force in this appeal, and hence it is dismissed.