IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 25/02/2011 CORAM THE HON'BLE MR.JUSTICE V.PERIYA KARUPPIAH ORIGINAL APPLICATION Nos.305,306 and 307 of 2010 ORDER :
V.PERIYA KARUPPIAH, J.
O.A.No.305 of 2010:
This application has been filed by the applicant seeking to grant an order of injunction restraining the 1st respondent to give effect to the letter of termination dated 06.03.2010.
O.A.No.306 of 2010:
This application has been filed by the applicant seeking an order of injunction restraining the 1st respondent from invoking the Bank Guarantee bearing No.0393BG00 100106 dated 31.03.2008 and amendment dated 09.07.2008 for Rs.2,40,00,000/- (Two crores and forty lakhs only) and for Rs.4,02,22,000/- (Four crores two lakhs and twenty two thousands) vide No.0393BG00152608 dated 26.05.2008 issued by ICICI Bank Ltd.
O.A.No.307 of 2010:
This application has been filed by the applicant seeking an injunction restraining the 1st respondent from appointing an alternate SCA pending disposal of this application.
All the three applications are filed by the applicant on the same cause of action and therefore, it is most convenient to pass a common order on these three applications .
2. The case of the applicant in all three applications would be as follows:
(a) The applicant is a Public Limited Company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Navi Mumbai. The applicant is engaged in various business including business for providing software product and services providing consultancy/advisory services on matters relating to software solutions/products, business intelligence, strategy planning, information technology and other related services. (b) The applicant has got several contracts with public institutions regarding several services in e-Governance projects. The 1st respondent is a society formed and registered under the Tamil Nadu Societies Registration Act, 1975 solely and wholly owned by the Government of Tamil Nadu the 2nd respondent herein. The respondents under its National e-Governance plan (NeGP) proposed to provide government and non-government services to the citizens through Common Service Centre(CSCs) to be set up under Public Private Partnership(PPP) on three modes, viz., (1) Connectivity i.e. State Wide Area Network (SWANs)/NICNET (2) National Data Bank/State Data Centers (SDCs) and (3) CSCs for delivery of Web-enabled Anytime Anywhere access to information and services in rural India and thereby integrate the social and commercial goals of rural India with an emphasis and major thrust on development of rural entrepreneurship. The 1st respondent called private entrepreneurs like the applicant to bid through the Tenders/Request For Proposal (RFP) floated by Directorate of Information Technology in Tamil Nadu. (c) Originally as per the RFP dated 26.09.2007, the applicant was required to establish and operationalize CSCs in phases as per the time schedule prescribed by the respondents. The applicant was to set up and operationalize the CSCs at its own cost and expense within 11 months in phases from the effective date as per the deliverables outlined in the RFP. The applicant was to operate and manage the CSCs for four years from the date of scheduled completion of CSC roll out. The applicant participated in CSC scheme not just as a business opportunity but also took as an opportunity to do welfare to the public at large. Therefore, the applicant even opted for a negative bid model rather than taking Revenue support from the respondents. (d) Accordingly, the applicant was declared as the bidder and was issued a Letter of Acceptance (LOA) bearing No.249/CSC/2007 dated 17.03.2008 as Service Centre Agency (SCA) to set up operations and manage 4395_CSC under 4 zones comprising 26 districts in Tamil Nadu. Following the LOA, the Master Service Agreement (MSA) dated 08.07.2008 was executed amongst Government of Tamil Nadu (R2), the Tamil Nadu e-Governance Agency (R1) and 3i infotech Limited (applicant). The MSA is binding upon all the three parties. According to clause (8), the dispute resolution should be done in accordance with the said provisions mentioned in clause 8. As per clause 8, if there is any dispute arisen under this MSA, the said authority shall notify the other party of the detailed nature of the dispute, the right or obligation under this agreement to which the dispute relates, and the relief sought by the party raising the dispute and on such information the parties shall at the first instance attempt to resolve the dispute in good faith and in case, the parties are unable to resolve the dispute in good faith and the matter shall be referred to the Empowered Committee set up in accordance with the agreement and the Empowered Committee shall attempt to resolve the dispute in a meeting specially convened for the purpose and the representatives of all the parties shall be invited to participate in such meetings. Thereafter, the negotiations between the parties and the proceedings before the Empowered Committee shall be kept as confidential unless parties agree otherwise. In case, the Empowered Committee is unable to resolve the dispute, the dispute shall be referred to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) and the arbitration proceedings will be held at Chennai, India and it shall be conducted in English and all documents shall, if not already in English, shall be translated into English by the party relying upon the document. Sole arbitrator shall be nominated by the Government of Tamil Nadu for the purpose of arbitration proceedings. The award or decision of the arbitrator pursuant to this clause shall be a domestic award and final, conclusive and binding upon the persons affected by it. During any period of dispute resolution, there shall be no suspension of MSA. e. While performance of the contract entered through MSA the applicant felt certain difficulties from the respondents side and the respondents failed to do or render support from the SDA for providing the e-formatting data on the SDC and Government portal to ensure that the applicant could roll out the CSCs. Further, the Village Level Entrepreneurs(VLE) lacked interest for want of e-government services, implementation of 3 pillar model. No Empowered Committee was set up to monitor the functions as envisaged in Schedule IV of the MSA. The SDA also failed to facilitate awareness campaigns to promote the CSCs amongst all stakeholders, rural customers and service providers. Similarly no Service Level Agreement with each Government department to deliver the G2C services to the rural citizens within stipulated timelines. The SDA also failed to provide regulatory support for the successful implementation of the CSC. SDA also failed to deliver G2C services which is a important one. The set up of SDC and SWANs which are crucial to implement the CSCs are necessary for rendering services to the citizens through CSCs but they were not available.
f. The applicant was put into great difficulty due to the failure of the respondents and therefore, it could not roll out the CSCs not more than 558 as on 31.03.2009, not more than 822 as on 31.05.2009 and finally not more than 1542 as on 10.02.2010. If really the respondents have co-operated with the applicant by not performing all the obligations cast upon them as stated earlier, the applicant would have rolled out all the CSCs i.e 4395 within such time and there would not be any difficulty in continuing its performances. However, the applicant had informed the respondents about the status of roll out of CSCs through its letter dated 11.01.2010 as 2100 out of the aforesaid 4395 CSCs.
g. The applicant has spent a total sum of approximately Rs.31 crores directly and indirectly for rolling out of the aforesaid CSCs and is incurring Rs.5 crores per year as operational costs of the no return on the said huge amount. This being so, the 1st respondent issued show cause notice dated 11.03.2009 questioning as to why penal action should not be taken against the applicant. Subsequently, meetings were held between the applicant and respondents and it was specifically pointed out various difficulties by the applicant including non-availability of G2C services as promised by the respondents. The applicant replied on 30.03.2009 informing all the difficulties faced by the applicant. The respondents informed the applicant through its letter dated 21.04.2009 to submit the further action plan. For that the applicant replied through its letter dated 13.05.2009, that it had rolled out 1548 CSCs and to deliver G2C services and were awaiting necessary services availability from the respondents. The applicant had also requested the State Government to provide the applicant atleast 6 months to complete roll out the CSCs in synchronisation with SWAN availability and SDC/e-Governance services delivery portal availability and also not to terminate the contract or invoke/encash bank guarantee or levy penalties on the applicant, unless and until the Government services are made available to the rural citizens in true spirit of purpose of the scheme as provided in the tender documents and relevant understanding given at the time of bidding.
h. However, the 1st respondent in its letter dated 27.05.2009 pointed out certain discrepancies in the applicant fulfilling its obligations and threatened levy of penalty through recovery proceedings. For that the applicant replied on 04.06.2009 and by an interim reply requested for further time to submit detailed reply and accordingly on 05.06.2009 replied that many additional districts were covered and the total number of rolled out CSCs was 1828 and had also mentioned that the claim of liquidated damages on the side of the respondents was uncalled for and due to the lack of interest by the respondents shown by Village Level Entrepreneurs (VLEs) since positive results were not forthcoming from the Government and the media propogation on the non availability of G2C services and the existing PPP model was not effective and rendering necessary support for achieving goals and the economic melt down across the globe which affected India also and invocation of bank guarantee which would adversely affect the financial planning which in turn shall affect the roll out of the whole project putting the SCAs in more challenges.
i. The claim for liquidated damages were punitive, unfair and uncalled for. The applicant had also asked for the constitution of Empowered Committee within 7 days, as per the terms of the contract for redressal of possible dispute and mid course corrections that may be required and to arrange for a meeting between parties to discuss the future rollout plan in frank and transparent manner with mutual willingness to accommodate the challenges faced by each other including the reasonable timelines without levying any liquidated damages noticed in the larger interest of the project in accordance with law and to expedite the availability of G2C (Government to Citizen) through CSCs to rural citizen, as envisaged under PPP model in true spirit of the project and not to levy any further penalty until the G2C services are made available in CSCs.
j. Accordingly, the meeting was held on 14.08.2009 at the office of the 2nd respondent for reviewing the CSC project. The challenge being faced by the applicant for implementing CSC project was clearly spelt out including the business and economic environment like recession in the economy, increase in the operational cost, non-availability of various services, challenges in recruiting and franchise/Village Level Entrepreneurs. Accordingly, the applicant requested the respondents to allow the applicant till 31.03.2010 to complete the rollout of the CSCs. The applicant had rolled out 1900 CSCs till then and it wanted to roll out for remaining centres also to with draw the liquidated damages notice in the larger interest of the project and in the light of the law applicable to liquidated damages and not to invoke the bank guarantee or levy penalties as mentioned in the claim for the liquidated damages notice, to waive the payment of negative bid amount till CSCs are rolled out completely and to expedite the availability, more and more G2C (Government to Citizen) services CSCs to rural citizens. The respondents, despite promise given for the improvement in fulfilling the obligations, continued with their failure to fulfil. Due to lack of interest of the respondents in implementing the same, the CSCs suffered set back in implementation of the program. The applicant had issued a letter on 11.01.2010 that the applicant would like to retain 10 districts out of 26 districts and to withdraw from the balance 16. The said reasonable suggestion in the said facts and circumstances was not considered, but the 1st respondent suddenly issued a letter on 18.02.2010 without appraising the various grievances of the applicant and called upon the applicant to show cause within 7 days from the receipt of the same as to why penalty, additional penalty cannot be levied against the applicant. The said letter was suitably replied on 20.02.2010 spelling out in detail the difficulties faced by the applicant. Accordingly, it had stated that as on first week of January 2010, the applicant rolled out 2100 CSCs and those CSCs should be mandatorily provide G2C services but were still not provided by the respondents and the lack of G2C services had brought a lot of unrest among the VLEs as they had banked heavily on G2C service for their income and business growth and it has also acted deterrent for new VLEs to have confidence and enroll thereof under this project. Some of the G2C services like extracting patta, chitta, download of forms, collector grievances etc., were made available to public at large through public link and thus it leaves VLEs with no benefits and the main idea of the CSC scheme suffering due to the non-availability of G2C services.
k. However, the 1st respondent without considering the reply had chosen to issue a letter dated 06.03.2010 which was received by the applicant on 08.03.2010 that it terminated the services of the applicant as one of the Service Centre Agency (SCA)for the roll out of 4395 centres in the 26 districts of the State and the Master Service Agreement between the State Designated Agency and Service Centre Agency dated 08.07.2008; to collect the damages and penalty for the non performance in rolling out the CSCs as per the timelines; terminating the MSA and the applicant was directed to comply with the provisions under clause 4.2 of the MSA and submit the Exit Management Plan; the applicant was directed to remit the sum of Rs.13,05,84,186/- within 10 days from the date of the receipt of the order failing which the bank guarantee to be invoked and to settle the alleged claims of VLEs.
l. The applicant issued a notice of dispute dated 15.03.2010, stating the reasons and the respondents’ inaction to provide the necessary data but it was replied and it would show the negative attitude of the respondents to fulfil the applicants request for resolving one of the main causes for the hurdles.
M.The disputes are necessarily to be discussed and stated amicably or otherwise resulted as stipulated in the MSA. As per the contents of clause 8 of MSA, the applicant informed the respondents through its letter dated 15.03.2010, the total nature of the disputes required to be solved and further required to designate 2 of the senior officers to carry out negotiation on behalf of the applicant with the 1st respondent representative. It was not acted upon and was not productive one. Therefore, the dispute in between the parties should have been referred to the Empowered Committee. However, no Empowered Committee as required by the RFP/MSA has been set up by the respondents. The claims made by the respondents in its letter dated 06.03.2010 are not entertainable. Therefore, the matter should have been referred to arbitration. The respondents are not entitled to unjustly enrich themselves by way of a claim for penalty of damages. The said dispute has also to be resolved in arbitration. The respondents before issuing the order of termination ought to have made an attempt for dispute resolution through settlement in between parties and thereafter, refer the matter to the Empowered Committee and to proceed further but straight away the termination has been effected despite the applicant is running all the 2100 centres that have been already rolled out.
n. In the above circumstances, pending arbitration it is just and necessary to grants appropriate interim reliefs by granting order of injunction restraining the 1st respondent to give effect to the letter of termination dated 06.03.2010; and also restraining the 1st respondent from invoking the bank guarantee bearing No.0393BG00 100108 dated 31.03.2008 and amendment dated 09.07.2008 for Rs.2,40,00,000/- and for Rs.4,02,22,000 vide No.0393BG00152608 dated 26.05.2008 issued by ICICI Bank and also to restrain the 1st respondent from appointing an alternate SCA pending the disposal of the application and to render justice.
3. The objections raised by the 1st respondent in the counter affidavit which was adopted by the 2nd respondent would be as follows:
a. The 1st respondent society registered under the Tamil Nadu Societies Registration Act, 1975 under the Information Technology department, Government of Tamil Nadu, established for implementation of all programs under the National e-Governance Programme (NeGP), including as the SDA for implementing the Common Service Centres (CSC) under the National e-Governance Plan (NeGP) of the Government of India, the E-Governance is the giant leap forward towards making Government accessible to the citizen, which will not only save huge cost to the Government but also to make it more transparent and to improve efficiency in day to day interaction with the common man. The CSCs are the front end delivery points for the private and social sectors and Government to the citizens of India. The people in the rural and semi-urban areas can avail the services such as digital photos, surfing internet,typing, printing,paying utility bills of private enterprise, booking railway tickets/air tickets, shopping, education, tuition, telemedicine, agricultural services and financial services etc. The efficiency of these and the marketing of the same will depend entirely on the SCA namely the petitioner and the degree to which they are able to train their franchises in reaching out to the public with the services offered by them.
b. In order to initiate steps to set up 5440 CSC in rural locations i.e (approx 1 centre for 3 villages) in all districts except Chennai. Two implementing agencies called SCA were selected through a open, transparent bid process to set up these centres. The petitioner was a successful bidder and it was allotted to set up 4395 centres as one of the SCAs in 26 districts of Tamil Nadu except districts of Chennai, Krishnagiri, Dharmapuri,Vellore and Tiruvannamalai.
c. Accordingly, a Letter of Acceptance dated 17.03.2008 was issued and the applicant SCA to set up, operationalize and manage 4395 CSCs in four zones, comprising of 26 districts in the State of Tamil Nadu and a Master Service Agreement (MSA) was signed on 08.07.2008 in between the respondents 1 and 2 and the applicant herein. The terms and conditions were clearly laid out with definite timelines. Accordingly, time has been stipulated in schedule I for roll out of the CSC and its operations. Accordingly 20% of roll out CSCs in four months from the date of issuance of the LoA (i.e) 879 CSCs on or before 16.07.2008, completion of 50% of roll out CSCs in seven months from the date of LoA i.e (17.03.2008) on or before 16.10.2008 as many as 2198 CSCs and to complete 80% of CSCs within nine months from the date of LoA 17.03.2008 i.e on or before 16.12.2008 as such as 3516 CSCs being the 80% and completion of all 100% or roll out of CSCs in eleven months from the date of issuance of LoA i.e all the 4395 CSCs on or before 16.02.2009.
d. The applicant could not perform its obligations and there was utter failure in implementing the project. As on 23.02.2009, only 280 CSCs were rolled out. Therefore, a show cause notice was issued to it by the 1st respondent on 11.03.2009, for which a reply was submitted on 30.03.2009 and since the reply was not satisfactory, the respondents through its letter dated 27.05.2009 issued a letter claiming a sum of Rs.2,30,22,000/- as liquidated damages as per the MSA. However, a month’s time from 01.05.2009 to 31.05.2009 was given to the applicant as stipulated period for mitigation of material breach and even after this mitigation period, the progress made was not significant. Even as per the submission of the applicant, the rollout did not proceed beyond 1542 CSCs as against the 4395 allotted centres from 28.10.2009. The applicant proposal in its letter dated 11.01.2010 for withdrawal from 16 districts and retaining only 10 districts viz., Coimbatore, Erode, Namakkal, Ariyalur, Perambalur, Trichy, Thanjavur,Nagapattinam, Madurai and Kanyakumari which would go to show their inability and incompetence in rolling out and operating the CSC scheme in the four zones allotted to them. It could also be inferred that the applicant had no intention of reaching the rural citizens and they were buying time for a phased withdrawal from the scheme as a whole. Several meetings were held with various representatives of the applicant but there was no further progress. There was no dispute at any given time except the requirement for fulfilment of the MSA in rolling out of the CSCs. Thus, the applicant failed to roll out CSCs as per timelines which implies their incompetence to operate the CSCs scheme to properly deal with and manage the complaints of VLE who were their franchisees which resulted in agitation, dharnas, several petitions to all levels of Government, criticism in the media on the handling of the scheme and to remit the charges to the 1st respondent of Rs.351 per CSC in respect of North West zone, Rs.301/- per CSC in respect of East zone. Rs.301/- per CSC in respect of South zone and Rs.251/- per CSC in respect of Central zone in respect of CSCs rolled out which is an integral part of the Master Service Agreement.
e. The 1st respondent after considering the explanation of the applicant with all relevant records has decided that the explanation of the applicant is devoid of merits and therefore terminated the service of the applicant as one of the Service Centre Agencies for the roll out of 4395 centres in the 26 districts of the State and the MSA between the SDA and SCA dated 08.07.2008, with reference to clause 4.1 of the MSA and to collect the damages and penalty of Rs.2,30,22,000/- plus Rs.5,24,95,200/- for the non performance in rolling out the CSCs as per the timelines stipulated and revenue support charges Rs.13,50,426/- towards the payment of negative bid charges as on 31.01.2010 for the rolled out centres, and the difference in amount of support charges proposed by the replacement SCA Rs.5,37,16,560/- as given in the Annexures I & II. Thus totalling to Rs.13,05,84,186.00 and consequently to provide MSA with applicant and to submit exit management plan as contained in the Schedule II of MSA within 15 days of receipt of the said order.
f. The applicant filed three applications under section 9 of the Arbitration and Conciliation Act, 1996. The above order passed by the respondent would not directly enable the applicant to seek restitution of the contract through specific performance as a relief even in the main arbitration proceedings itself. Therefore, the present interim relief of staying the termination is wholly impermissible in law and actually amounting to grant the final relief which cannot even be granted in the arbitration proceedings. The applicant has not made out any case as to how the State Data Centres is connected to the roll out CSCs. The alleged lack of interest of the VLEs, if any, is attributed to the VLEs made by the applicant or the faulty business model adopted by the applicant. The other successful SCA namely M/s. SREJ Sahaj has been able to rollout the CSCs in the four districts allotted to it with a business model that was appropriate. There is absolutely no issue that has to be taken before the Empowered Committee. As far as the instructions issued to the District Collectors by the 1st respondent in the letter dated 30.10.2009, the applicant has not capitalized on these instructions under several initiatives that were taken by the 1st respondent for G2C services delivery through the CSCs. The Government website www.tn.gov.in was suitably modified such that all available G2C services could be accessed from this interim State portal. Some of the services made available to the CSCs in the interim State portal are VAT filing,Transport,RTO services, Electoral services, Power Finance,Land Records Services, Express Bus Ticket Reservation etc. However, in all the case the other SCA namely M/s.SREi Sahaj has approached the departments and got the services in their favour, a case in example being the signing of MoU between M/s. SREJ Sahaj and the State Elections Department. There is nothing on record with the 1st respondent that the applicant company has approached any of the departments to whom the SDA had issued a letter of introduction.
g. The 1st respondent has taken all steps for G2C service delivery and it is only the applicant who has failed to utilize these opportunities. It also pointed to the fact that the applicant has not taken the minimum effort to train the VLEs and provide them adequate opportunity to understand the scope of all the G2C services already available. Providing G2C services and necessary support to the VLEs rests only with the applicant. It has been already clarified in the Request for Proposal itself that CSCs would not be provided with TWSWAN connectivity as the SWAN connectivity remains only for the internal usage of the Government Departments as intranet. It is the responsibility of the applicant to provide the necessary connectivity to the CSC. The tabulation that 2100 CSC have been established by the applicant are not true. In the affidavit it has been stated that only 1542 CSCs were rolled out as on 28.10.2009 which is contradicting the statement of the applicant. Out of the said 1542 centres only 32 centres of the applicant, were registered. Therefore, the remaining centres would have been either surrendered or closed., The allegation that the applicant spent a sum of Rs.31 crores and has incurred Rs.5 crores per year as operational cost is not correct. The present case is due to utter failure of the applicant in fulfilling its obligations and executing the project in accordance with the terms and conditions of the agreement. The applicant had collected approximately Rs.1.25 lakhs each from around 1542 VLEs. Thus a sum of Rs.19.28 crores have been collected and the applicant miserably failed to execute the project and it is also liable to settle its contractual obligations to the VLEs. Since the reply given by the applicant on 30.03.2009 does not contain any satisfactory explanation the 1st respondent imposed liquidated damages of Rs.2,30,22,000/- in accordance with the terms and conditions of the LOA and MSA and issued the order dated 27.05.2009, the 1st respondent has taken every steps for delivering many Government services in addition to the already available services and the applicant miserably failed to approach the Government department for making necessary services level agreement (SLA). The reasons mentioned by the applicant regarding global economic meltdown, concession afforded by certain other countries etc are totally irrelevant to screen the miserable failure of the applicant. The applicant alone is responsible for his poor performance for not implementing the project. The VLEs appointed by the applicant had complained that they have remitted Rs.1.25 lakhs to the applicant even the equipment provided was only for a sum of Rs.50,000/-.
h. The agreement itself would go to show that if any failure on the part of the applicant in completing the project or completing its obligations, the applicant is liable to pay liquidated damages and the bank guarantees will be invoked. The suo motu withdrawal of 16 districts allotted to them would go to show that the applicant was not able to perform his part of the contract as per LOA and MSA. Therefore, levy of liquidated damages is in accordance with the agreement. The said liquidated damages is pre-estimate of the damage and there cannot be any dispute over its quantum. The applicant has no intention of performing its obligations and only interested from escaping from its obligations and to avoid payment of liquidated damages payable in accordance with RFP, LOA and MSA and to avoid return of money collected from the VLEs.
i. Even assuming without conceding that the rollout has to be extended up to 31.03.2010, it would be impossible for the applicant to fulfil any commitment after having failed miserably. The negative bid amount payable is worked out to only on the number of CSCs rolled out as on 28.10.2009 (i.e) 1542 as per the records of the 1st respondent which was updated by the applicant company itself. The 1st respondent was forced to issue another show cause notice dated 18.02.2010 calling for explanations from the applicant as to why the MSA between the 1st respondent and applicant should not be terminated and liquidated damages imposed due to the pouring of the complaints from VLEs against the applicant. The 1st respondent has taken all necessary steps to provide G2C services through CSCs and it is only the applicant who has not approached the relevant departments for entering into service level agreements. The 1st respondent SDA had arranged a training programme on the available G2C services for all district level personnel of both the SCAs. The vision of NeGP is to provide service delivery through internet for general public and CSCs for rural citizen and therefore service delivery to general public through internet cannot be denied and it cannot be made exclusive to the CSCs. The applicant himself had quoted the negative rates as in the tender and is responsible for the same. The applicant has no intention to perform its obligations and it is only interested in wriggling out of the consequences and avoid payment of liquidated damages apart from return of the money collected from the VLEs. The injunction restraining the invocation of bank guarantee can be granted only there is fraud and irretrievable injury being demonstrated before the court. The mere statement that the bank guarantees are vitiated by fraud will not be sufficient to get an injunction. It must be specifically pleaded with instances of fraud in order to get the interim order. The two bank guarantees provided by the applicant towards
performance guarantee and now sought to be invoked by the 1st respondent is only to the value of Rs.6,42,22,000/- which is short of the total damages suffered by the 1st respondent at Rs.13,05,84,186/-. Therefore, the claim of the applicant for issue of injunction restraining the respondents in appointing the alternate SCA if granted will paralyze the scheme itself, which would defeat the very purpose of the National e-Governance Plan resulting in disruption of delivery of services to the rural citizens and will also affect National e-Governance Mission Mode Plan of the Government of India. The applicant has not made out prima facie case. There is no balance of convenience or irreparable loss to grant interim relief. The damages claimed by the respondent is in accordance with the liquidated damages contained in the agreement and the applicant is bound to pay the said amount and such damages are not payable after the adjudication by the Arbitral Tribunal and on the contrary, the applicant can invoke the arbitration clause only after the action taken by the respondent in recovering the liquidated damages. The 1st respondent is entitled to appoint alternate service centre agency since the applicant has miserably failed. Therefore, the 1st respondent has prayed for dismissal of all the three applications.
4. Heard Mr.A.R.L.Sundaresan, learned Senior counsel appearing for the applicant and Mr.P.S.Raman, learned Advocate General represented for learned counsel for ‘M/s.King & Patridge appearing for R1 and also Mrs.V.Bhavani Subbarayan, Spl. Government Pleader (CS) for R2.
5. Learned Senior Counsel appearing for the applicant would submit in his argument that the applicant a successful bidder was selected as one of the SCAs (Service Centre Agency) on the foot of the Letter of Acceptance (LoA) given by the 1st respondent who is the State Designated Agency (SDA) for the tender submitted as per “Request For Proposal (RFP)” issued by the 1st respondent on behalf of 2nd respondent. He would also submit that accordingly the applicant as SCA was given the contract to roll out 4395 CSCs in 26 districts of Tamil Nadu State which were divided into 4 zones. Master Service Agreement (MSA) was accordingly entered into between the applicant and 1st respondent and 2nd respondent for the implementation of National e Governance Plan (NeGP). He would further submit that the applicant was to rollout 4395 CSCs all over the 26 Districts, designated in phased manner. He would further submit that the applicant was very much taking steps to rollout the CSCs and had incurred nearly Rs.31 crores for rolling out such CSCs despite much difficulties and hurdles faced by the applicant (SCA). He would further submit in his argument that the applicant had rolled out 2100 CSCs Village Level Entrepreneurs (VLEs) i.e CSCs and had entered into contract with the said VLEs so as to perform in accordance with the NeGP. He would also submit that the applicant could complete 1542 CSCs as on 10.02.2010, and thereafter at the time of submitting arguments, the applicant had completed the roll out of 2100 CSCs in the districts allotted to them. He would also submit in his argument that the delay in rolling out CSCs was due to reluctance of VLEs to give and take the assignment since the respondents did not come forward and co-operate with the applicant for furnishing or delivering various Government services by executing Service Level Agreement with the Government departments. He would further submit that unless the Government department have furnished particulars to the CSCs the VLEs may not get sufficient returns in their investment and therefore, the respondents 1 and 2 are to be blamed for not entering SLAs as stipulated in the MSA. He would also submit that the activity regarding the Government SWAN was also not available for the CSCs and therefore, the demand for the CSCs among VLEs were not encouraging. He would further submit that the alleged non compliance of timeline for rolling out the CSCs by the applicant was purely due to the aforesaid reason and the applicant cannot be made liable for the alleged breach of the said condition. He would further submit that the respondents are under the obligations of entering into SLA which would be a multiparte agreement including the concerned service department or agencies so as to have the data of such departments or agencies to make available to the rural citizens as per the NeGP. He would further submit that the said mandate is given in the Schedule III of MSA. He would also submit that the outside agencies like media propogated against the applicant and the VLEs have lost the confidence and trust, and they have not come forward to take assignment of CSCs. Similarly he would also bring it to the notice of this court that the global economic melt down which affected India also had got the effect over the interested persons. He would further submit that the other request concession given to entrepreneurs were also one of the causes. He would again submit that the liquidated damages are punitive in nature and invoking of bank guarantee as stipulated in the MSA would also make the applicant not completing the rolling out of CSCs in time. The Government despite repeated requests made by the applicant has not withdrawn the claim for liquidated damages in the larger interest of the project.
6. He would further submit that the 1st respondent without considering the letter written by the applicant had issued a letter on 06.03.2010, that it had terminated the services of the applicant as one of the CSAs for not rolling out 4395 CSCs in 26 districts of the State and the MSA between the SDA(R1) and the SCA (Applicant) dated 08.07.2008 and therefore to calculate the damages and the penalty for non performance in rolling out the CSCs as per the timelines and consequent to the termination of MSA, the applicant was directed to comply with the provisions under clause 4.2 of MSA and to submit an Exit Management Plan and the applicant was further directed to remit the sum of Rs.13,05,84,186/- within 10 days from the date of the receipt of the said order failing which the bank guarantee will be invoked.
7. Learned Senior counsel would further submit that the said notice was replied by the applicant on 15.03.2010 through a notice of dispute for invoking clause 8 of the MSA. He would further submit that intransigent and negative attitude of the respondents was one of the main cause to the applicant’s inability to fulfil the applicant in rolling out CSCs. He would also submit that the applicant has requested the 1st respondent to have a discussion and settle amicably as provided in clause 8 of MSA and also requested to designate 2 senior officers to co-operate and to negotiate on behalf of applicant with the representatives of the 1st respondent when no resolutions were brought in the meeting, disputes have to be referred to an Empowered Committee. However, to the best of the applicant’s knowledge no Empowered Committee as required in RFP or MSA has been set up by the respondents. He would also submit that the demand for Rs.13,05,84,186/- and the threat to invoke bank guarantee are ex-facie illegal,unwarranted and untenable. He would also submit in his argument that the contract in between the applicant and the VLEs are not relevant to the respondents. However, it has been directed in its letter dated 06.03.2010 to settle the claims of the VLEs which is not correct. He would further submit that the CSCs scheme initiated by the applicant under various other State Governments have not failed since they were made available with G2C services (Government to Citizen services). However, the respondents have not facilitated the applicant from getting the G2C service as per terms of MSA. He would further submit that the termination of MSA is unilateral and without any valid cause. He would also submit that the delay in rolling out the CSCs was solely due to the non availability of G2C services which has to be done by the respondents and therefore the respondents cannot blame and seek for liquidated damages and also levy penalty against the applicant. He would further submit that the denial of the Government services to the applicant would amount to a dispute. He would further submit that the termination of MSA cannot be done by the respondents and the collection of liquidated damages with penalty are not in accordance with law governing liquidated damages. He would also submit that the punitive damages are not permissible in law and therefore there are disputes to be solved through negotiations in between parties and if it failed, it haws to be referred to the Empowered Committee constituted by the respondents and if it is not also concluded before the Empowered Committee, it has to be referred to Arbitrator to be appointed by the 2nd respondent Government for adjudicating the dispute in between the parties. He would further submit that the claim of referring the disputes to negotiations was mentioned in the reply dated 15.03.2010 and the respondents did not heed to the said request of the applicant and no Empowered Committee has been constituted by the Government in order to defeat the rights of the applicant under clause 8 of MSA. He would further submit that the termination of SCA invoking the demand for payment of damages by the 1st respondent is not at all sustainable and it is to be adjudicated in accordance with clause 8 of the MSA.
8.He would therefore submit that section 9 of the Arbitration and Conciliation Act would be attracted till the appointment of Arbitrator by the 2nd respondent Government and till then the subject matter of the dispute has to be preserved under section 9 of the Arbitration and Conciliation Act.
9. He would further submit that the applicant has rolled out 1542 CSCs as on 10.02.2010 and thereafter, he had established 2100 CSCs and has given a list which are rolled out in 23 districts out of 26 districts and it cannot be simply decided that the termination would be operative and the applicant should be removed from and as SCA. He would further submit that the respondents cannot select any other SCA for the remaining 2295 CSCs nor the already rolled out 2100 CSCs cannot be disturbed by the respondents by appointing alternative SCA in the place of the applicant and disturb the VLEs appointed by the applicant in the aforesaid 2100 CSCs. He would further submit that the bank guarantee cannot be invoked merely because the applicant is said to have breached the conditions of the MSA and the dispute as to whether there is any breach or not has to be decided by the Empowered Committee and if not by the Arbitrator to be appointed and thereafter only the liquidated damages can be claimed. He would further argue that the bank guarantee produced by the applicant cannot also be invoked since the liability to pay damages or any other damages payable to the respondents could at best be decided only before the Arbitrator likely to be appointed by the Government.
10. He would further submit that the liquidated damages cannot be unreasonable and it should be as per sections 73 and 76 of the Contract Act and a reasonable compensation has to be ascertained for the grant of liquidated damages. He would draw the attention of the court to a judgment of Hon’ble Apex court reported in (2003) 5 SCC 705 in between ONGC Ltd vs. Saw Pipes Ltd. No penalty can be imposed against any person and if any such condition has been entered in between parties in any agreement or in MSA it would be a condition in terrorem and claim to the effect that the applicant is liable to pay Rs.13 crores to the respondents cannot be sustained. He would also submit that the alleged damages sustained by the respondents has not been stated nor proved. He would also cite yet another judgment of Hon’ble Apex court reported in (1997) 1 SCC 568 in between U.P.State Sugar Corporation vs. Sumag International Ltd to the principle that injunction has to be granted when irretrievable injury will be caused, if no injunction is granted. He would also draw the attention of the court to a judgment reported in (2007) 8 SCC 110 in between Himadri Chemicals Industries Ltd v. Coal Tar Refining Co for the same proposition. He would therefore, request that the termination of MSA by the 1st respondent will affect not only the applicant’s rolling out of CSCs but also the VLEs who are having a separate contract and business dealings with the applicant. He would further submit that admittedly Arbitration clause is available in the MSA and therefore the subject of the dispute shall be preserved intact till the arbitral proceedings are over. Therefore, the injunction as sought for in all the three applications against the respondents may be granted. If no injunction is granted the 1st respondent will proceed with the Exit Management plan and the entire money invested in rolling out 2100 CSCs for more than Rs.31 crores would be lost by the applicant and if the arbitrator finds that the applicant is entitled to continue the already rolled out CSCs numbering 2100 it cannot be restored thereafter and the loss would be irreparable. Similarly, the liquidated damages if paid without rendering of any decision from the Arbitrator, it would be amounting to an enrichment on the person’s money. He would also submit that the applicant did not receive any return from CSCs rolled out, as the respondents did not co-operate to furnish G2C services to those CSCs. He would further submit that the applicant is therefore entitled to injunction as sought for in all the three applications.
11. Learned Senior Counsel for the 1st respondent would submit in his argument that the applicant was very much reluctant and sluggish in rolling out the CSCs as agreed in between the applicant and the 1st respondent. He would further submit that a similarly placed M/s.SREJ Sahaj had rolled out CSCs as agreed by him within such timeline and the disabilities mentioned for the delay in rolling out the CSCs by the applicant did not affect the said M/s. SREJ Sahaj and therefore the reasons submitted by the applicant for not rolling out the CSCs within the time cannot be accepted. He would further submit in his argument that the NeGP is intended for providing all Government services and other commissioning services from private sectors in an integrated manner on the door step of the citizen at an affordable cost and it is needless to say that the e-Government is a giant leap forward towards making Government accessible to the citizen which will not only save huge cost to the Government but also to make it more transparent and improve efficiency in day to day interaction with the common man. He would further submit that such a credible program was delayed by the applicant himself due to his own laches. He would further submit in his argument that from the date of entering into MSA the applicant has to complete 20% of roll out CSCs in four months from the date of issuance of the LoA i.e 879 CSCs on or before 16.07.2008; to complete of 50% of roll out of CSCs in seven months from the date of LoA as many as 2198 CSCs i.e ., on or before 16.10.2008 and to complete 80% of CSCs within nine months from the date of LoA i.e., on or before 16.12.2008 as much as 3516 CSCs being the 80% and to complete all 100% of roll out of CSCs in eleven months from the date of issuance of LoA i.e all the 4395 CSCs on or before 16.02.2009. The applicant had not completed the rolling out of all CSCs but had rolled out only 1542 CSCs as on 10.02.2010. He would further submit that it is an admitted fact that he has not completed the rollout as per phased program mentioned in Schedule I of MSA. He would also submit that according to clause 4 of the MSA the 1st respondent is entitled to act upon the breach committed by the applicant. He would also submit that the respondents are entitled to terminate the MSA and upon termination Exit Management Plan procedure as outlined in schedule II have to be adopted and therefore the termination notice was issued by the 1st respondent after issuing the show cause notice. On termination of the contract MSA with the applicant the respondents are entitled to proceed to appoint or replace any third party as SCA in the place of existing SCA the applicant. He would also submit that the breach committed by the applicant invited the issuance of show cause notice and termination of MSA, apart from claiming liquidated damages, as fixed in the MSA and the penalties are also liable to be levied upon the applicant in accordance with the terms of MSA.
12. He would further submit in his argument that the applicant did not spend any amount for rolling out the CSCs but had collected Rs.1.25 lakhs from each of the VLEs and therefore the allegation that the applicant had spent a sum of Rs.31 crores so far in respect of the said rolling out of CSCs are not sustainable. He would further submit that the VLEs who are to render services to the rural citizens should not be deprived of any monetary benefits and collection of money from them would amount to defeat the entire program itself, since the benefit will not reach the rural common man. He would further submit that the applicant has not taken any interest in rolling out the CSCs which were mentioned in the MSA for the sake of NeGP. He had delayed the rolling out and thereby caused the breach of MSA for his benefit only. He would therefore, submit that the liquidated damages claimed and the penalty imposed and the termination of MSA were done on sound reasons. He would also submit that there is no dispute in between the applicant and the respondents, since the respondents have not replaced the applicant from SCA and appointed any third party as alternate SCA. Therefore, the referral to arbitration cannot be done and invoking of section 9 of Arbitration and Conciliation Act is not at all sustainable. He would further submit that the applicant cannot seek for any prohibitory order from invoking bank guarantee since the terms and conditions of MSA would entitle the respondents to invoke bank guarantee whenever breach was committed by the applicant (SCA). He would also submit that the defect on the part of the applicant (SCA) was not rectified, removed or cured and therefore, it is a material breach and the invoking of bank guarantee cannot be sought to be prohibited. Therefore, he would submit that the only way available to the applicant is to proceed for Exit Management Plan along with the respondents and leave ways to other SCAs to come and do performance of the e-Governance program for the welfare of the people. He would therefore, request the court to dismiss all the applications.
13. Learned Advocate General Mr.P.S.Raman for Special Government Pleader appearing for 2nd respondent would submit in his argument that the applicant is admittedly the existing SCA but had committed breach of conditions of MSA and thereby liable to pay liquidated damages as well as other liabilities like penalties as agreed by him and the MSA entered into between the applicant and the respondents on 08.07.2008, was terminated by the Government and an order was passed by the Government of Tamil Nadu. The said order passed by the Government cannot be questioned before an Arbitral proceedings and it can be set aside only by way of filing writ or other proceedings known to law. He would further submit that the breach committed by the applicant in rolling out the CSCs is an admitted fact and as on 10.02.2010, the applicant had rolled out 1542 CSCs only and thereafter, he had submitted during the time of argument that it was 2100 CSCs rolled out and the list produced by the applicant would go to show that this CSCs were not rolled out within the stipulated time as mentioned in Schedule I of MSA. He would further submit that the respondents are entitled to invoke bank guarantee given by the applicant as well as impose penalty for the admitted breach of contract. He would also submit that the 1st respondent on considering the national importance of the agreement, has terminated the same as the delay was caused by the applicant.
14. He would also submit that as per the termination of MSA, the respondents are entitled to proceed to replace a third party as SCA in the place of the applicant and in such circumstances, the applicant cannot ask for any injunction not to give effect to the letter of termination dated 06.03.2010, to restrain the 1st respondent from invoking bank guarantee as permitted in MSA and also to restrain the 1st respondent from appointing alternative SCA, pending disposal of the applications. He would further submit that the only way for the applicant would be, to go for Exit Management Plan with the respondents as per schedule II. Therefore, he would request the court to dismiss all the applications.
15. I have given anxious thoughts to the arguments advanced on either side.
16. The applicant is admittedly a Service Centre Agency (SCA) for rolling out 4395 CSCs in 26 districts decided under 4 zones. Accordingly, the applicant and the 2nd respondent have entered into an agreement called MSA on 08.07.2008 after a Letter of Acceptance was given by the 1st respondent to the tender submitted by the applicant. The subsequent execution of MSA on 08.07.2008 is admitted. Therefore the conditions and stipulations made in MSA are binding on all parties. Now, the complaint against the applicant is that he had not complied with the roll out of all the CSCs within the time frame as fixed in Schedule I. According to the said program, it has been mentioned in Schedule I as follows:
“a. Completion of 20% of roll out of CSCs in four months from the date of issuance of the Letter of Acceptance (LoA)- As such 879 CSCs (20% of 4395 CSCs) should have been rolled out on or before 16.07.2008.
b. Completion of 50% of roll out of CSCs in seven months from the date of issuance of the Letter of Acceptance (LoA) As such 2198 CSCs (50% of 4395 CSCs) should have been rolled out on or before 16.10.2008.
c. Completion of 80% of roll out of CSCs in nine months from the date of issuance of the Letter of Acceptance (LoA) As such 3516 CSCs (80% of 4395 CSCs) should have been rolled out on or before 16.12.2008.
d. Completion of 100% of roll out of CSCs in eleven months from the date of issuance of the Letter of Acceptance (LoA) As such 4395 CSCs (100% of 4395 CSCs) should have been rolled out on or before 16.02.2009.”
According to the submission of the applicant the said CSCs were rolled out as filed in his affidavit. Para 12 would be as follows:
Progress of roll out
Total No.of centres
No. of CSCs rolled out
As on 31.03.2009
4395
558
As on 31.05.2009
4395
822
As on 10.06.2009
4395
905
As on 01.07.2009
4395
905
As on 03.08.2009
4395
1248
As on 10.09.2009
4395
1311
As on 14.10.2009
4395
1534
As on 28.10.2009
4395
1542
As on 10.02.2010
4395
1542
The applicant informed the respondents subsequently about the status of the roll out of CSCs as below:
Rollout numbers informed through various letters
No of CSCs Rolled out, as per records shared with the respondents
13th May 2009
1548
19th Aug 2009
1900
11th Jan 2010
2100
According to the said information given by the applicant as on 10.02.2010, 1542 CSCs were rolled out from out of 4395 CSCs . However, it has been clarified that the rollout numbers informed through various letters and the CSCs rollout as per records shared with the respondents would show that 2100 CSCs were rolled out by the applicant as on 11.01.2010. Therefore, the particulars furnished as on 10.02.2010 should be taken as 2100 CSCs instead of 1542 CSCs. The learned Senior counsel appearing for the applicant has produced the list of 2100 CSCs rolled out in the form of a typed set. As per the said list, the rolled out CSCs would be 2100 as on 10.02.2010. Therefore, we could prima facie see that the conditions agreed in Schedule I of MSA was not complied with by the applicant. The remaining 2295 CSCs in the 3 remaining districts as well as other districts have not been admittedly rolled out by the applicant as agreed by them in the MSA.
17. The reasons attributed by the applicant was that the respondents were not co-operative in furnishing Government services to the CSCs rolled out and due to the non supply of particulars by Government services, the return from the CSCs were not encouraging and therefore, the VLEs were scared and all the media had also played spoil sport by showing wrong picture as if the VLEs have been deceived. The actual cause for non remuneration of the VLEs is only due to the non furnishing of Government services. It was submitted by the learned Senior counsel that the respondents ought to have joined with the applicant and the Government departments including SCAs pursuant to Schedule III of MSA. According to schedule III of MSA, the Model Service Level Agreement would go to show that the Government (2nd respondent), the State Designated Agency (1st respondent) and the Government Department or quasi-Government or Autonomous body under the Government of Tamil Nadu offering public services and the SCA (Applicant) are shown as parties for entering Service Level Agreement (SLA). The definition of SLA has been given under clause 1 (bb) of MSA which would run as follows:
“(bb) Service Level Agreement means agreement executed by and between Government of Tamil Nadu, State Designated Agency, Concerned Service Department or agencies and the SCA for delivering various Government services through the CSCs, pursuant to Schedule III of this MSA;”
As per the aforesaid definition, the SCA has to be joined in the said agreement between the parties referred for delivering Government services through CSCs. Therefore, the state level agreement could have been entered into only if and when the co-operation of the respondents along with the Department of Government or others concerned. The contention of the respondents was to the effect that the applicant as SCA ought to have approached the Government departments and other quasi Government departments or their agencies for getting Government services for the CSCs concerned cannot be possible at the initiation of the SCA (applicant) alone. It has to be done by the Government along with other Government departments after joining the applicant in entering an agreement defined in clause1(bb) of MSA. Therefore, the reason put forth by the applicant that the Government service were not furnished by the Government for the CSCs could be a reasonable ground.
18. The next reason would be that the VLEs have been reluctant to take CSCs from the applicant owing to the media propoganda regarding the applicants attitude. The VLE contract is governed as per clause 2.3 of the MSA and 2.3.c would categorically state that the SCA shall identify, train, facilitate, and enter into appropriate arrangements with the VLEs at its own cost and risk in accordance with the provisions of the RFP and MSA for establishing, managing, operating and maintaining the CSCs. Therefore, it is a separate contract by SCA with VLEs and the media propoganda will not in anyway make the applicant to purge out of breach.
19. As regards the failure to enter into Service Level Agreement for having the Government service is certainly an omission on the part of the respondents which may be a reason for the applicant to have its plea for not rolling out the CSCs within the timeline as mentioned in Schedule I. However, the breach is a breach. Whether it is a breach by the respondents by not entering into Service Level Agreement which would cause the applicant from not rolling out the CSCs within the time limit is a question to be answered. In the meantime, the 1st respondent has issued a show cause notice to the applicant and even after submitting a reply by the applicant, it had terminated the MSA and sought the applicant to come forward for negotiation regarding the Exit Management Plan as per schedule III of the MSA. According to the termination letter dated 06.03.2010, the 1st respondent is empowered to terminate a contract as per terms of MSA. Whether it is acceptable or not has to be considered only upon perusing the relevant clauses of the contract governing the breach and dispute resolution. So far as breach of contract is concerned it is dealt with in clause 4 of the MSA.
Clause 4.1 of MSA would run as follows:
“4.1 Events of Default, Rectification and Termination
(a) If the SCA fails to roll out the CSCs as per the implementation schedule, the rectification and penalty payable shall be as indicated in Schedule I. Failure to pay the total penalty shall also be construed as breach. The State Designated Agency may at its sole option, debit or set off the amounts of penalties, if any, through invocation of forfeiture of the Performance Security, in full or part, as the case may be”
As per clause 4.3 of MSA and clause 8 of MSA, the disputes in between the parties to MSA shall be decided according to the said clauses. Clause 8 would run as follows:
“8. Dispute Resolution
8.1. Dispute Resolution:
(a) In case a Party is of the opinion that a dispute has arisen under this MSA, the Party shall notify the other Party of the detailed nature of the dispute, the right or obligation under this Agreement to which the dispute relates, and the relief sought by the Party raising the dispute.
(b) The Parties shall in the first instance attempt to resolve the dispute in good faith. In case, the Parties are unable to resolve the dispute, the matter shall be referred to the Empowered Committee set up in accordance to this Agreement.
(c) The Empowered Committee shall attempt to resolve the dispute in a meeting specially convened for the purpose. The representatives of all parties shall be invited to participate in such meetings.
(d) The negotiations between the Parties and the proceedings before the Empowered Committee shall be kept confidential unless parties agree otherwise.
(e) Each Party shall bear its own cost in relation to the dispute resolution as aforesaid.
(f) Incase, the Empowered Committee is unable to resolve the dispute, the dispute shall be referred to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996). The Arbitration proceedings will be held at Chennai, India. The arbitration shall be conducted in English and all documents shall, if not already in English, shall be translated into English by the Party relying upon the document.
(g) The Government of Tamil Nadu shall nominate sole Arbitrator for purpose of the arbitration proceedings.
(h) The provisions of the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) will be applicable and the award made there under shall be final and binding upon the parties hereto, subject to legal remedies available under the law.
(i) The Parties agree that any decision or award of the arbitrator pursuant to this clause shall be a domestic award and final, conclusive and binding upon the parties and any persons affected by it. The Parties also agree that any court of competent jurisdiction may enforce any arbitration award rendered pursuant to this clause.
(j) During any period of dispute resolution as hereinbefore provided, there shall be no suspension of this MSA.
8.2 Amendment
The Parties acknowledge and agree that amendment to this agreement shall be made in writing in accordance with the procedure this MSA is executed and signed.”
In the said clause, whenever the party is of the opinion that dispute has arisen under MSA, it shall intimate the other party about the details of the dispute and the right or obligations under this agreement. When there is a dispute, then the party shall at the first instant to refer the dispute in good faith and if they are unable to resolve the dispute, the matter shall be referred to the Empowered Committee and the said Empowered Committee shall attempt to resolve the dispute and if the Empowered Committee is also unable to resolve the dispute, then the matter shall be referred to the Arbitrator in accordance with Arbitration and Conciliation Act. Therefore, it is quite clear that if any dispute has arisen in between parties it has to be resolved and if it is not possible, the procedure as contemplated has to be followed and the said Arbitrator has to be appointed by the Government for the purpose of adjudicating the disputes in between the parties. According to clause 5.9, there shall be an Empowered Committee constituted by the Government of Tamil Nadu with a reference from State Designated Agency (R1) and other State Government departments which shall meet atleast once in a month. The reply sent by the applicant to the letter of termination had requested for referring the matter for negotiation and thereafter to Empowered Committee. It has been argued by the learned Senior counsel that there was no constitution of Empowered Committee till then and therefore, the chances of referring to Empowered Committee is not possible and therefore the matter has to be referred to Arbitration, straightaway.
20. It has been contended by the applicant that the State level agreement has not been entered by the respondents even though the applicant was ready to enter into an agreement with the State Government departments and other agencies as per the terms of MSA. The reference made by the respondents that the applicant alone has to approach the Government departments for G2C service is not at all correct because State Level Agreements are essential for getting G2C service and such an agreement can be entered only with the help of the respondents and not upon the initiation of the applicant. Therefore, whether the profit due to the non providing of G2C service has made the applicant from rolling out CSCs within the time limit or has it no effect over such roll out of the CSCs within the timeline has to be nextly considered. As discussed supra, there is no Empowered Committee constituted for solving the disputes and therefore, it has to be dealt with by the Arbitrator straightaway to be appointed by the State Government. The termination of MSA was done on the face of the non payment of liquidated damages and penalties imposed by the 1st respondent against the applicant is a dispute in respect of non furnishing of State level agreement as well as non establishing of Empowered Committee on the part of the respondents. At this juncture, we have also to see whether it is feasible for the 1st respondent to terminate the MSA is a question. According to clause 8.1.j of the M.S.A, it has been categorically laid down as follows:
(j) During any period of dispute resolution as hereinbefore provided, there shall be no suspension of this MSA.
This provision has to be considered only by the arbitrator and to decide the matter accordingly. Therefore, I could see that any act and onus done in pursuance of MSA are certainly governed by the provisions under clause 8 of MSA. Therefore, we see there is a dispute in between parties which was raised by the applicant. Is it possible to terminate the MSA itself is also a question to be decided by the Arbitrator. When Arbitrator has to decide all these points, since there is no Empowered Committee or no negotiation taken place it has to be referred to Arbitrator only as per clause 8.
21. The judgments cited by the learned Senior counsel regarding the levy of liquidated damages and penalty could be gone into only at the time of adjudication of dispute before the Arbitrator. Therefore, this court does not deal with the said circumstances.
22. Therefore, I could see a prima facie case for the grant of injunction regarding the termination of MSA as per the order dated 06.03.2010. If for any reason injunction is not granted the respondents will proceed with the replacement of the SCA and consequently the already rolled out CSCs by the applicant will have to be disturbed by appointing other VLEs that will lead to further confusion and therefore, the balance of convenience is also found in favour of the applicant regarding termination of MSA as well as the replacement of SCA for the already rolled out CSCs. It is patently clear that the applicant was not able to rollout 2295 CSCs and this court had permitted the respondents to go in, for appointing some other SCA for those unrolled 2295 CSCs considering the importance of the said program. An interim order was passed in permitting the applicant to continue the already rolled out 2100 CSCs and the 1st respondent was permitted to roll out through other SCA in respect of the remaining 2295 CSCs of the other districts and it was agreed in between the applicant and the respondents till the disposal of these applications.
23. In view of findings that the disputes in between parties are to be decided by Arbitrator, the said arrangement shall continue till the arbitral proceedings are over and it is for the arbitrator to decide as to the continuance or not of the total 4395 CSCs dealt with in the MSA. Therefore, the injunction sought to restrain the 1st respondent from appointing alternate SCA is ordered only in respect of the already rolled out 2100 CSCs by the applicant and no injunction is ordered in respect of remaining 2295 CSCS.
24. As regards invoking of bank guarantee, the non compliance of the condition of rolling out the CSCs within the timeline as mentioned in schedule I is patent and the reason submitted by the applicant for not rolling out the entire CSCs could be gone into by the arbitrator in the arbitral proceedings for granting relief to parties. However, it is prima facie a breach of the said condition laid under clause 4.1 (b)(c)(d)(e) which would be as follows:
“4(1)(b) If there is breach which translates into default as per this MSA in provisioning of Government services and or default as per this MSA in provisioning of Government services on account of matters related to the provision of other IT and non-IT services by the SCA under the Scheme or through the CSC network, continuously for more than seven days or more than a cumulative period of ten days in a month, except in conditions of force majeure, the same shall attract liquidated damages at the rat Rs.1000 per CSC per week. In case the rectification is not carried out within 30 days of the applicability of the inoperability clause, it would constitute a material breach by the SCA, which shall entitle the State Designated Agency to, at its sole option, forthwith terminate this MSA henceforth or on the expiry of such stipulated period, unless the SCA has in the meantime rectified, removed or cured, as the case may be, such material breach. The State Designated Agency may at its sole option, debit or set off the amounts of liquidated damages or penalties, if any, through invocation or forfeiture of the Performance Security, in full or part, as the case may be.
(c) In the event the SCA fails to make timely deposit of the GOVERNMENT OF TAMIL NADU’s share of the gross amounts of the weekly transaction charges collected from the citizens in accordance with the RFP, the SCA shall be required to pay liquidated damages at the rate of 10% of the total overdue amount due or Rs.500 per week per CSC, whichever is more. In the event that such payment defaults occur for 7 consecutive working days, the GOVERNMENT OF TAMIL NADU or State Designated Agency shall be entitled to forthwith required the SCA to stop providing the Government services to the citizens through the CSCs including termination of the MSA. The State Designated Agency may at its sole option, debit or set off the amounts of liquidated damages due to it through invocation and forfeiture of the Performance Security, in full or part, as the case may be.
(d) In the event the SCA fails to make timely deposit of the Government utility provider’s share of the gross amounts of the weekly transaction charges collected from the citizens in accordance with the RFP, the SCA shall be required to pay liquidated damages at the rate of 10% of the total overdue amount due or Rs.500 per day per CSC, whichever is more. In the event that such payment defaults occur for 7 consecutive working days, the GOVERNMENT OF TAMIL NADU or State Designated Agency shall be entitled to forthwith stop Government support, whether physical or otherwise, and require the SCA to stop providing the Government services to the citizens through the CSCs, and may even terminate the MSA. The State Designated Agency may at its sole option, debit or set off the amounts of liquidated damages due to it through invocation and forfeiture of the Performance Security, in full or part, as the case may be.
(e) In the event of any invocation of the Performance Security by the State Designated Agency, the SCA shall be required to forthwith replenish or top up the existing Performance Security, failing which the same shall constitute a material breach by the SCA, which shall entitle the State Designated Agency to terminate this MSA. Failure to replenish or top up within 7 days will invite liquidated damages of Rs.1,000/- per day and penal interest @ 18% for the delayed period for the amount of deficit in the Performance Security. Failure to Replenish or top up beyond 30 days will be material breach and may lead to termination of agreement.”
25. On careful perusal of the aforesaid clauses, the liquidated damages are liable to be paid by the defaulting party as scheduled thereunder. Whether such provisions in the agreement are contrary to law governing the liquidated damages and whether they are penal in nature has to be decided by the Arbitrator. But as far as the invoking of bank guarantee is concerned, unless fraud has been spoken and shown against the Government, it cannot be said that Government is not entitled to invoke bank guarantee which is given for the purpose of ensuring the performance of the MSA. The first respondent is a Government sponsored society and the 2nd respondent is the Government. Nothing is stated against the respondents that they have fraudulently acted against the applicant. It is a settled law that it is irretrievable from invoking the bank guarantee in the given circumstances when there are no allegations of any fraud. Therefore, the respondents cannot be restrained from invoking bank guarantee in the anticipation of the damages likely to be caused to it. However, the actual damages claimed in the show cause notice is more than Rs.13 crores and the bank guarantee given is less than that amount and such compensation is also yet to be decided and ascertained only before the Arbitrator. If for any reason, the respondents are found not entitled for any compensation from the applicant the invoking of the bank guarantee, the Government is the biggest litigant and it can return the amount realised from the invoking of bank guarantee. Therefore, I am of the considered opinion that the respondents are entitled to invoke the bank guarantee in the facts and circumstances of the present case and therefore, the no injunction can be granted against the respondents from invoking the bank guarantee. However, the respondents are prohibited from proceeding against the applicant for liquidated damages on the termination of MSA since it is within the domain of the Arbitrator.
25. For the foregoing discussion, this court is of the view that the applicant is entitled for injunction as sought for in respect of O.A.No.305 of 2010; a direction against the respondents not to collect the damages, from the applicant except by invoking bank guarantee by the respondents in O.A.No.306 of 2010; and applicant is entitled for injunction against the respondents from appointing an alternate SCA in respect of 2100 CSCs already rolled out by the applicant and there is no injunction against the respondents in respect of the remaining 2395 CSCs in O.A.No.307 of 2010, till the arbitral proceedings are over.
26. In fine, (a) the Application in O.A.No.305 of 2010 is allowed and injunction is granted in favour of the applicant as sought for; (b) the Application in O.A.No.306 of 2010 is partly allowed with a direction against the respondents not to collect damages from the applicant except by invoking the bank guarantee by the respondents; and (c) O.A.No.307 of 2010 is partly allowed and there is an injunction in favour of the applicant against the respondents from appointing an alternate SCA in respect of 2100 CSCs already rolled out by the applicant and no injunction is granted against the respondents in respect of the remaining 2395 CSCs where no CSCs were rolled out by the applicant, till the arbitral proceedings are over.
27. With the aforesaid findings, the applications are ordered to that extent. .02.2011. Index:Yes/No Internet:Yes/No kpr/vks V.PERIYA KARUPPIAH,J. Kpr/Vks Pre-delivery order in O.A.Nos.306,306 and 307 of 2010 .02.2011