M/S Mariha Communication vs. Union Of INDIA

Facts

The petitioner, M/s. Mariha Communication, was the successful bidder in an e-auction for running a Rail Coach Restaurant at Hubballi Railway Station for a period of five years, from February 18, 2023, to February 17, 2028. A contract was signed on December 5, 2022. The petitioner invested approximately Rs. 25 Crores in setting up the restaurant. On August 14, 2023, the petitioner received a termination notice alleging breach of contract due to a false experience certificate. Subsequently, during the pendency of the first writ petition, the respondents issued a notice on November 10, 2023, alleging occupation of excess area. A joint inspection report followed, leading to a communication on November 24, 2023, invoking a penalty of Rs. 33,47,506/- and an additional Rs. 16,015/- (including GST) for using excess area and advertisement boards. The petitioner's representation against this penalty was not considered, and further action was taken to remove the alleged encroachment. This led to the filing of a second writ petition.

Held

The Court held that the charges against the petitioner regarding the furnishing of a false experience certificate were grave and required an opportunity of hearing, which was not afforded. Similarly, concerning the occupation of excess area, the respondents appear to have directly proceeded with determination and recovery based on an inspection report without giving the petitioner an opportunity to be heard. The Court found these actions unjustified due to non-compliance with the principles of natural justice. Consequently, the impugned actions taken by the respondents against the petitioner were held to be unjustified. The Court directed the respondents to issue a notice to the petitioner if they intended to take any action for violation, provide an opportunity to submit a reply, and thereafter pass appropriate orders in accordance with the law. It was clarified that all contentions of both parties were kept open for these purposes. The Court did not decide on the alternative prayer regarding the interpretation of Clause XIV Penalty (c) versus Clause 19.1 of the Standard Conditions of Contract.

Key Issues

1. Whether the termination notice dated August 14, 2023, issued by Respondent No. 2, is liable to be quashed on the ground of violation of principles of natural justice, specifically the failure to provide an opportunity of hearing to the petitioner concerning the allegation of furnishing a false experience certificate? (Question of law and fact, concerning principles of natural justice and contract conditions). 2. Whether the communication imposing a penalty dated November 24, 2023, and subsequent actions for occupying excess area are liable to be quashed for non-compliance with principles of natural justice, particularly the absence of a proper opportunity of hearing? 3. Whether Clause XIV Penalty (c) of the Special Conditions of Contract is contrary to Clause 19.1 of the Standard Conditions of Contract and opposed to fair trade practice, public policy, and principles of natural justice, thereby violating the petitioner's rights under Articles 14 and 19(1)(g) of the Constitution of India? Petitioner's Arguments: The petitioner argued that no notice or opportunity of hearing was provided before taking action, especially concerning the grave charge of furnishing a fake experience certificate. Similar contentions were raised regarding the penalty for occupying excess area. The petitioner also contended that Clause XIV Penalty (c) of the Special Conditions of Contract is contradictory to the Standard Conditions and violates constitutional rights. Respondents' Arguments: The respondents justified their actions, stating that a one-year experience was a material condition for the tender. They claimed that the petitioner submitted a fake experience certificate, as the alleged issuer, Sri P.K. Shefi, denied issuing it or employing the petitioner. The respondents asserted that their actions were in accordance with the Standard Conditions of Contract.