Summary
A transformer manufacturer was debarred for three years from the tenders of a Madhya Pradesh distribution company and penalised Rs. 27,98,960 at the maximum rate of 10% for non-supply under two purchase orders, although the company had itself deferred the balance deliveries 'until further instructions' and never withdrew that deferment. The High Court upheld the debarment with a minor modification, ignored the challenge to the penalty and summarily dismissed review. The Supreme Court quashed both orders: the show-cause notice referred only to debarment so the penalty travelled beyond it, the maximum penalty was imposed without reasons or quantified loss, and the entire blame for non-supply could not be foisted on the supplier when the purchaser had deferred deliveries. The appeal was held maintainable despite an earlier withdrawn special leave petition.
Issues
- Whether a penalty can be imposed on a contractor when the show-cause notice proposed only debarment and did not indicate the proposed imposition of penalty.
- Whether an order debarring a supplier for three years for non-supply can stand where the purchaser had itself deferred the balance deliveries until further instructions and issued none before cancelling the purchase orders.
- Whether appeals against the High Court's original order are maintainable after an earlier special leave petition was withdrawn with liberty and a review petition was summarily dismissed.
Provisions considered
- Article 226, Constitution of IndiaThe High Court failed to consider the challenge to the penalty order at all and dealt with the debarment without addressing the effect of the deferment communication, and then dismissed review without examining these errors; both orders were disapproved. (¶¶ 14, 20, 25, 26)
- Clauses 17, 17.1 and 17.4, Tender TS-532, Annexure-III General Terms and ConditionsPermit cancellation of the purchase order with liquidated damages of 10% of the ex-works price of undelivered stores and debarment for a declared period; the Court held the penalty could not be quantified without a specific notice and the maximum could not be imposed without reasons. (¶¶ 7, 16, 23, 23.1)
Held
- A show-cause notice must specify the grounds and the action proposed, and an order travelling beyond the notice is without jurisdiction to that extent, as explained in UMC Technologies; the notice of 26.11.2019 proposed only debarment, the earlier cancellation orders reserving further action cannot be read as a notice for penalty even though they used the words 'cancelled with imposition of penalty', and finality of the cancellations does not amount to notice of penalty. The penalty imposed without notice is unsustainable. (¶¶ 21, 23)
- The authority imposed the maximum penalty of 10% without specifying why the maximum was chosen or any quantified loss, ignoring the factors indicated by the supplier; as the penalty fails for want of notice in any case, remand would serve no purpose and the penalty order is set aside. (¶¶ 23.1, 23.2)
- The supplier had made substantial supplies, and on 18.09.2019 the purchaser itself deferred the balance deliveries until further instructions; no further instructions were ever shown to have been issued before the cancellation orders and the show-cause notice. The respondents' written submissions did not answer how the supplier could be made solely responsible for the default thereafter, so the debarment was issued without regard to the undeniable facts and is set aside. (¶¶ 19, 24)
- Where an earlier special leave petition was withdrawn with liberty to pursue other remedies and the High Court then summarily rejected review, the original High Court order cannot be treated as having attained finality, following A.P. State Financial Corporation v. C.M. Ashok Raju, and the challenge is examined on merits. (¶¶ 17, 22, 22.1)
Result
Appeals allowed; High Court orders dated 23.04.2021 and 13.12.2021 set aside and the writ petition allowed; the debarment order dated 30.07.2020 and penalty order dated 17.08.2020 quashed; the debarment annulled for all purposes and not to operate in any future tender; no recovery to be made under the penalty order, and any amount recovered to be refunded within a month failing which it carries simple interest at 9% per annum from the date of recovery; parties to bear their own costs.