M/S Rana G Power Co. vs. South Eastern Coalfiedls Limited

Held

The Court held that the imposition of penalty under Clause 9.2 of the General Terms and Conditions of the Contract is not legally sustainable. The Court referred to its previous judgment in WPC No. 2577 of 2020 (M/s. Jai Ambey Roadlines Vs. South Eastern Coalfields Limited and Another), which interpreted Clause 9.2. In that judgment, it was held that a penalty cannot be imposed as a matter of course and requires a proper application of mind to ascertain the actual loss caused to the company. The Court found that the respondents' submission that since Clause 9.2(ii) provided for a 20% penalty on incomplete work, and no work was started, the penalty was worked out from the total value of work, was unacceptable. The Court reiterated that the 20% cannot be imposed as a matter of course and the loss must be ascertained. Consequently, the petition was allowed concerning the penalty, and the respondents were left at liberty to take further steps in the matter of imposition of penalty, if advised, in accordance with law. The orders of cancellation of contract and blacklisting were not interfered with, as per previous judgments.

Facts

The petitioner, M/s Rana G Power Co., was the successful tenderer for a contract with South Eastern Coalfields Limited (SECL) for hiring HEMM. The contract value was approximately ₹198.89 crore, inclusive of GST. The petitioner was issued a Letter of Intent (LOI) on 22.09.2021 for a bid of ₹168.55 crore. Subsequently, the petitioner was awarded two other LOIs for similar work. All these LOIs were cancelled, penalties were imposed, and the petitioner was debarred and blacklisted. The genesis of these actions was the non-deposit of performance security. The petitioner had previously approached the High Court in other writ petitions concerning these cancellations and penalties. In those earlier cases, while upholding the cancellation and blacklisting, the imposition of penalty was set aside due to lack of notice. This petition specifically addresses the legality of the penalty imposed.

Key Issues

1. Whether the imposition of penalty under Clause 9.2 of the General Terms and Conditions of the Contract is legally sustainable, considering the petitioner's argument that it reflects a total non-application of mind and is based on a flat rate without proper computation of loss, as per the ruling in WPC No. 2577 of 2020. 2. Whether the procedure prescribed under Clause 9.2 of the General Terms and Conditions of the Contract was duly followed by the respondents in imposing the penalty. Petitioner's arguments: The petitioner contends that Clause 9.2, which allows for a penalty of 20% of the value of incomplete work, cannot be imposed as a matter of course. They rely on the judgment in WPC No. 2577 of 2020, arguing that the penalty requires proper application of mind to ascertain the actual loss suffered by the employer, and a flat rate imposition without such calculation is unsustainable. They also argue that the imposition of penalty in this case reflects a total non-application of mind. Respondents' arguments: The respondents argue that the procedure prescribed under Clause 9.2 was followed, and since no work was started, the 20% penalty was calculated on the total value of the work, thus adhering to the clause.