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Himachal Pradesh High Court · body

2025 DAILYLAW 3660 (HP)

Health Biotech Ltd. v. State of H. P.

2025-12-01

G S Sandhawalia, Jiya Lal Bhardwaj

body2025
JUDGMENT : G.S. Sandhawalia, Chief Justice The challenge in the present writ petition is to the order dated 21.03.2025 (Annexure P-8), whereby the respondents forfeited the EMD amount and debarred the petitioner from participating in the tender of the Department of Health and Family Welfare Govt. for a period of three years. Further directions were also issued to the indenting officers not to issue supply orders to the petitioner-firm and to initiate action as per Clause 5 of the tender document. 2. The arguments which have been put forth by the counsel for the petitioner are that in pursuance of the tender process dated 27.04.2023 (Annexure P-2), e-tenders were invited for supply of medicines and drugs for the period of a rate contract of one year, the last date of which was 15.05.2023. It is his case, that he had been found L-1 for five medicines, which is clear from the reply on behalf of the respondents and from letter dated 19.02.2024 (Annexure P-4). 3. It is argued that on account of the delay as on the hands of State, the bid validity had been extended beyond the prescribed limit of 180 days from the date of the award of the contract and the agreement came to be signed on 24.02.2024 (Annexure R-2/IV). 4. A request has been made in pursuance of the communication dated 14.05.2024 (Annexure P-5) for furnishing the requisite irrevocable bank guarantee, that the amount be deducted from the sale supply bills which will be produced by the authorized distributor as per the previous practice. It is thus submitted that the said request had been repeated on 06.06.2024 (Annexure P-7) and only after a period of nine months, the impugned order was passed. The petitioner had continued to supply goods during the period of contract and therefore, it is submitted that the order was not liable to be sustained as such for canceling the contract and forfeiting the EMD and further directing that the petitioner who was debarred for a period of three years without issuing of notice as such which was not justifiable. It was further submitted that the performance security was duly furnished also on 29.03.2025 immediately after the cancellation but had been wrongly returned and therefore a writ should be issued directing the acceptance of the performance guarantee. 5. It was further submitted that the performance security was duly furnished also on 29.03.2025 immediately after the cancellation but had been wrongly returned and therefore a writ should be issued directing the acceptance of the performance guarantee. 5. Learned counsel for the State on the other hand has brought to our notice that apart from the letter dated 14.05.2024 (Annexure P-5), whereby specifically the performance guarantee to the tune of Rs.4,41,613/- had to be furnished in the prescribed format Annexure-K of the tender document by 27.05.2024, the petitioner had been put to notice that suitable action as per tender notice would be initiated. It is submitted that reminders were issued on 14.06.2024 (Annexure R-2/V) and on 20.07.2024 (Annexure R- 2/VI) and it was only thereafter the action was taken and therefore, the petitioner can have no such grouse. 6. Reliance has been placed upon relevant terms of the tender conditions, to contend that the needful had to be done after the award and that there was such a power that in case the bidder failed to sign the agreement and to deposit the performance security as prescribed, the earnest money was to be refunded after the signing of the agreement and deposit of performance security by the successful bidder. There was also a provision that the debarment could take place for a period of three years. It is accordingly submitted that the respondent had the power to annul the award, forfeit Bid Security and take other punitive action as per the terms of the contract and the performance guarantee had not been executed which has to be valid up to ninety days after the date of completion of all contractual obligations. Therefore, the petitioner can have no ground as such to challenge the action. 7. We are of the considered opinion that as per the terms and conditions of the Clause of the tender documents, the action of the State, to the extent of forfeiting the EMD and canceling the contract, cannot be faulted and admittedly the petitioner, inspite of having been given opportunities and having been issued notices has failed to adhere to the terms of the contract. The agreement which was entered into between the parties was specific that for the supply of the five medicines, the terms and conditions of the contract were deemed to form and would be read as part of the agreement. The agreement which was entered into between the parties was specific that for the supply of the five medicines, the terms and conditions of the contract were deemed to form and would be read as part of the agreement. The terms and conditions as such of the relevant document read as under:- “5. EARNEST MONEY DEPOSIT AND COST OFTENDER DOCUMENT A. Every bidder shall deposit an EMD of Rs.2,00,000/- (Rupees Two Lakh only) on or before last date and time for submission of the bid online, in ICICI Bank as per facility available on website https://wwwhptenders.gov.in. in favour of Director Health Services, Himachal Pradesh. B. Every bidder shall deposit a cost of tender document Rs.500/- (Rs. Five hundred only) on or before last date and time for submission of the bid online, in ICICI Bank as per facility available on website https://wwwhptenders.gov.in in favour of Director Health Services, Himachal Pradesh. C. EMD will be returned to unsuccessful bidders after award of rate contract. D. Earnest Money deposit of the successful bidder will be refunded after the signing of the agreement and deposit of Performance Security by the successful bidder. E. EMD deposited by the bidders will be forfeited, if it comes to notice of the Purchaser that the information/documents furnished in its tender are incorrect, false, misleading or forged without prejudice to other rights of the Purchaser. F. In case if the successful bidder fails to sign the agreement and to deposit the Performance Security as prescribed and scheduled or withdraws its bid within its validity after award of contract, the EMD will be forfeited and the successful bidder will be debarred from participation in the tender of the Department of Health & Family Welfare Govt. of H.P., for a period of three years. G. No interest will be paid to the bidders on their EMD. 6. xxxxxx A. xxxxxx B. Performance Security: i. Within Ten days after the issue of Letter of Award/information about acceptance of the bid by the Purchaser, the successful bidder shall furnish to the Purchaser, Performance Security, valid up to ninety days after the date of completion of all contractual obligations by the successful bidder, including the warranty obligations. ii. 6. xxxxxx A. xxxxxx B. Performance Security: i. Within Ten days after the issue of Letter of Award/information about acceptance of the bid by the Purchaser, the successful bidder shall furnish to the Purchaser, Performance Security, valid up to ninety days after the date of completion of all contractual obligations by the successful bidder, including the warranty obligations. ii. The amount of Performance Security shall be @5% (five percent) of the estimated contract value(based on requirement as given in Annexure-L) subject to a minimum of Rs.10,000.00), performance security may be furnished in the form of irrevocable Bank Guarantee (including e-Bank Guarantee), in prescribed format issued by a commercial bank in India. iii. If the successful having been called upon by the Purchaser to furnish Performance Security, fails to do so within the specified period, it shall be lawful for the Purchaser at its discretion to annul the award, forfeit Bid Security, besides taking any other punitive action, debarring fromparticipation for a period of three years.” 8. Perusal of the above terms and conditions of tender document would go on to show that the necessary EMD of Rs.2,00,000/- has to be deposited and thereafter it was to be returned to the unsuccessful bidders and whereas the successful bidder’s EMD was to be refunded after signing the agreement and deposit of the Performance Security as per Clause 5(D). The Performance Security was specified to be 5% as per Clause 6(B) (ii) and as per Clause 9(B) (iii) upon the failure to furnish the Performance Security within the specified period it would be lawful for the purchaser at its discretion to annul the award, forfeit Bid Security, besides taking any other punitive action, debarring from participation for a period of three years. The action thus of the State to annul the award and forfeit the Performance Security cannot be faulted in any manner as per the terms and conditions entered into. 9. However, we are of the considered opinion that the above Clause and the law laid down by the Apex Court in Gorkha Security Services vs. Govt. The action thus of the State to annul the award and forfeit the Performance Security cannot be faulted in any manner as per the terms and conditions entered into. 9. However, we are of the considered opinion that the above Clause and the law laid down by the Apex Court in Gorkha Security Services vs. Govt. of NCT of Delhi , AIR 2014 SC 3371 , makes it clear that the punitive action of debarring the petitioner for three years cannot be taken without issuing a specific notice proposing such punishment, as it is a harsh penalty with severe consequences and causes prejudice to the contractor and thus the principles of natural justice have to be applied and the Rule of Audi Alteram Partem has to be considered. The relevant paras of the said judgment reads as under:- “17. It is a common case of the parties that the blacklisting has to be preceded by a show cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting many civil and/or evil consequences follow. It is described as “civil death” of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in Government Tenders which means precluding him from the award of Government contracts. Way back in the year 1975, this court in the case of M/s. Erusian Equipment & Chemicals Ltd. vs. State of West Bengal & Anr. (1975) 1 SCC 70 ( AIR 1975 SC 266 ), highlighted the necessity of giving an opportunity to such a person by serving a show cause notice thereby giving him an opportunity to meet the allegations which were in the mind of the authority contemplating blacklisting of such a person. This is clear from the reading of Para Nos.12 and 20 of the said judgment. Necessitating this requirement, the court observed thus:. “12. Under Article 298 of the Constitution the executive power of the Union and the State shall extend to the carrying on of any trade and to the acquisition, holding and disposal of property and the making of contracts for any purpose. Necessitating this requirement, the court observed thus:. “12. Under Article 298 of the Constitution the executive power of the Union and the State shall extend to the carrying on of any trade and to the acquisition, holding and disposal of property and the making of contracts for any purpose. The State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality. 20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist”. Again, in Raghunath Thakur v. State of Bihar and Ors. (1989) 1 SCC 229 : ( AIR 1989 SC 620 ) the aforesaid principle was reiterated in the following manner:- “4. Indisputably, no notice had been given to the appellant of the proposal of blacklisting the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. Insofar as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. Insofar as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the principles of natural justice. It has to be realised that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order. In that view of the matter, the last portion of the order insofar as it directs blacklisting of the appellant in respect of future contracts, cannot be sustained in law. In the premises, that portion of the order directing that the appellant be placed in the blacklist in respect of future contracts under the Collector is set aside. So far as the cancellation of the bid of the appellant is concerned, that is not affected. This order will, however, not prevent the State Government or the appropriate authorities from taking any future steps for blacklisting the appellant if the Government is so entitled to do in accordance with law i.e. after giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State Government will be at liberty to pass any order in accordance with law indicating the reasons therefor. We, however, make it quite clear that we are not expressing any opinion on the correctness of otherwise of the allegations made against the appellant. The appeal is thus disposed of.” Recently, in the case of Patel Engineering Ltd. vs. Union of India and Anr. (2012) 11 SCC 257 ( AIR 2012 SC 2342 : 2012 AIR SCW 3260) speaking through one of us (Jasti Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner: “13. The concept of “blacklisting” is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. ( AIR 1975 SC 266 ) as under: “20. The concept of “blacklisting” is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. ( AIR 1975 SC 266 ) as under: “20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains.” 14. The nature of the authority of the State to blacklist the persons was considered by this Court in the above mentioned case and took note of the constitutional provision (Article 298), which authorises both the Union of India and the States to make contracts for any purpose and to carry on any trade or business. It also authorises the acquisition, holding and disposal of property. This Court also took note of the fact that the right to make a contract includes the right not to make a contract. By definition, the said right is inherent in every person capable of entering into a contract. However, such a right either to enter or not to enter into a contract with any person is subject to a constitutional obligation to obey the command of Article 14. Though nobody has any right to compel the State to enter into a contract, everybody has a right to be treated equally when the State seeks to establish contractual relationships. The effect of excluding a person from entering into a contractual relationship with the State would be to deprive such person to be treated equally with those, who are also engaged in similar activity. 15. It follows from the above judgment in Erusian Equipment case that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors.” 18. Thus, there is no dispute about the requirement of serving show cause notice. We may also hasten to add that once the show cause notice is given and opportunity to reply to the show cause notice is afforded, it is not even necessary to give an oral hearing. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engineering (supra).” 10. While following the law laid down earlier in M/s Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and Anr., (1975) 1 SCC 70 , AIR 1975 SC 266 , the Apex Court has held as under:- “20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.” 11. The said view was also followed in UMC Technologies Private Limited vs. Food Corporation of India and another (2021) 2 SCC 551 , wherein it was held that the show cause notice must clearly spell out from its contents and has to be clearly inferred as such and that the blacklisting deprives the person of the privilege of entering into government contracts and has long-lasting civil consequences for business prospects. The mere existence of a power in a clause of the bid document cannot satisfy the mandatory requirement of a proposed action. The relevant paragraph reads asunder:- “25. The mere existence of a power in a clause of the bid document cannot satisfy the mandatory requirement of a proposed action. The relevant paragraph reads asunder:- “25. The mere existence of a clause in the bid document, which mentions blacklisting as a bar against eligibility, cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show cause notice. The Corporation’s notice is completely silent about blacklisting and as such, it could not have led the appellant to infer that such an action could be taken by the Corporation in pursuance of this notice. Had the Corporation expressed its mind in the show cause notice to black list, the appellant could have filed a suitable reply for the same. Therefore, we are of the opinion that the show cause notice dated 10-4-2018 does not fulfill the requirements of a valid show cause notice for blacklisting. In our view, the order of blacklisting the appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law. As a result, the consequent blacklisting order dated 9-01-2019 cannot be sustained.” 12. In the present case, it is to be noticed that even when the initial notice dated 14.05.2024 was issued to furnish the bank guarantee, there was a specific condition that suitable action would be initiated against the petitioner, in case, the bank guarantee was not furnished. Thereafter, only reminders were issued on 14.06.2024 (Annexure R-2/V) and on 20.07.2024 (Annexure R-2/VI) by way of e-mail. None of them as such mentions regarding the issue of blacklisting. The initial notice reads as under:- “Subject :- Deposit of Performance Security for e-tender for Supply of Medicines/Drugs to HP Government Health Institutions vide Tender ID- 2023_DFHW_72501_1 published on 27.04.2023. Madam/Sir, This is with reference to the e-Tender ID- 2023_DFHW_72501_1 published on 27.04.2023 for the procurement of Medicines and Drugs. In this context, it is to inform you that as per the e- tender document Clause 6 Performance Security Deposit & Agreement :- (B) (i.) “Within ten days after the issue of Letter of award/information about acceptance of the bid by the Purchaser, the successful bidder shall furnish to the Purchaser, Performance Security, valid up to ninety days after the date of completion of all contractual obligations by the successful bidder, including the warranty obligations” and (B) ii. “The amount of Performance Security shall be @5% (five percent) of the estimated contract value (based on requirement as given in Annexure-L) subject to a minimum of Rs.10,000/-), performance security may be furnished in the form of irrevocable Bank Guarantee (including e-Bank Guarantee), in prescribed format issued by a commercial bank in India”. Therefore, you are requested to submit the performance security amounting to Rs.4,41,613/- (Rs. Four lakh forty one thousand six hundred thirteen only) in the form of irrevocable Bank Guarantee (including e-Bank Guarantee), in prescribed format Annexure-K of the tender document issued by a commercial bank in India on or before 27/05/2024 to this office failing which suitable action as per tender clause may be initiated against you.” 13. Thus, it is apparent that there was no specific show cause notice issued before the order of blacklisting. Another aspect which is also to be noticed is that when the final order has been passed, there is again reference to Clause 5 of the tender document which has been reproduced above, which prescribes the procedure for blacklisting up to a period of three years. The impugned order thus reads as under:- “Whereas, M/s Health Biotech Limited did not submit the performance security/Bank Guarantee for the e-tender of Medicines & Drugs vide tender ID-2023_DFHW_72501 being L1 bidder. Whereas, tender document Clause 5 Earnest Money Deposit and Cost of Tender Document (Point: F) is reproduced as under:- “In case, if the successful bidder fails to sign the agreement and to deposit the Performance security as prescribed and scheduled or withdraws its bid within its validity after award of contract, the EMD will be forfeited and the successful bidder will be debarred from participation in the tender of the Department of Health & Family Welfare Govt. of HP for a period of three years.” Whereas, the above mentioned firm have not complied with the terms and conditions of the said tender, therefore, as per the decision taken in the State Level Store Purchase Committee (SLSPC) meeting dated 19.02.2025 in view of the aforementioned clause, the EMD amount of the following firm is hereby forfeited and debarred for participation in the tender of the Department of Health & Family Welfare Govt. for a period of three years”. 1. M/s Health Biotech Limited, SCO 162, 164, Top Floor, Air India Building, Sector 34-A, Chandigarh-160022. for a period of three years”. 1. M/s Health Biotech Limited, SCO 162, 164, Top Floor, Air India Building, Sector 34-A, Chandigarh-160022. The indenting officers are hereby directed not to issue supply orders to the above mentioned firm with immediate effect. All the indenting officers are also directed to initiate action as per the Clause 5 accordingly.” 14. Thus it is apparent that even the respondents in sum and substance know that they have to proceed under Clause 5 of the tender document and therefore, the necessary show cause notice was missing regarding the severe consequences as such. 15. In such circumstances, we are of the considered opinion that the only limited relief which can be granted in the present case is that the order dated 21.03.2025 is liable to be partly quashed, to the extent of the issue of debarment for a period of three years, as an appropriate notice should have been issued before passing such an adverse order. 16. As noticed, in view of the principles of natural justice, the petitioner may be able to put forth some circumstances on account of which he was not able to furnish the bank guarantee and it is always open to the State to take a call as to whether the debarment is to be to the tune of the maximum period of three years or a lesser period, in the facts and circumstances, to be projected by the petitioner. 17. In such circumstances, we allow the writ petition partly and quash the order dated 21.03.2025 to the limited extent of debarment. It is open to the State to issue a fresh show cause notice and take action in accordance with law``. 18. The argument that the writ should be issued to extend the contract and the performance security be now accepted, cannot be accepted, as a writ of mandamus cannot be issued against the terms of the contract. 19. All pending applications stand disposed of accordingly.