M/S Zenith-Event And Services And Another vs. State Of Hp And Others

Held

The Court held that the forfeiture of the performance security and earnest money by the respondents was illegal and irrational, violating the principles of natural justice. The Court found that the respondents failed to provide the petitioners with an opportunity to be heard before passing the forfeiture order, which is a mandatory requirement, especially when dealing with forfeiture of security deposits and potential blacklisting. The Court relied on established Supreme Court precedents emphasizing the necessity of issuing a show-cause notice and providing a fair hearing to the affected party before taking such punitive actions. The Court noted that while it generally refrains from interfering in contractual matters, it can intervene when the exercise of power is absolutely illegal, irrational, or suffers from procedural impropriety. Since the German Hangers were no longer in place, remanding the matter for a factual inquiry would serve no useful purpose. Therefore, the Court quashed the forfeiture order dated 09.02.2024 and directed the refund of Rs. 15,67,597/- to the petitioners within four weeks. The Court did not grant interest on the forfeited amount as it was not prayed for by the petitioners.

Facts

M/s Zenith-Event & Services (Petitioner No. 1) and another filed a writ petition challenging the forfeiture of performance security and earnest money amounting to Rs. 15,67,597/- by the State of HP and others (Respondents). The forfeiture was based on alleged encroachments surrounding German Hangers erected by the petitioners for the Dussehra festival, 2023. The petitioners were the highest bidders for erecting four German Hangers and had deposited a total of Rs. 16,00,000/- as earnest money and security deposit. After the festival, they sought the release of these funds, but the respondents initiated an inquiry regarding encroachments without notifying the petitioners, leading to the forfeiture order dated 09.02.2024. The petitioners averred they completed their job as per tender conditions and were not given an opportunity to be heard during the inquiry.

Key Issues

1. Whether the forfeiture of performance security and earnest money by the respondents, without providing the petitioners an opportunity of being heard, is violative of the principles of natural justice, specifically the rule of Audi Alteram Partem, as enshrined in Article 14 of the Constitution of India and principles of natural justice, particularly in the context of forfeiture of security deposits in contractual matters? Petitioner's Arguments: The petitioners argued that the forfeiture order was passed without any prior notice or opportunity to present their case, violating the fundamental principles of natural justice. They relied on various Supreme Court judgments, including M/s. Erusian Equipment & Chemicals Ltd. vs. State of West Bengal & Anr., UMC Technologies Private Limited Vs. Food Corporation of India, Jagdish Mandal Vs. State of Orissa, Michigan Rubber (India) Ltd. Vs. State of Karnataka, Jagmohan Singh Vs. State of Punjab and Others, Allied Motors Limited Vs. Bharat Petroleum Corporation Limited, Uflex Limited Vs. Government of Tamil Nadu, and State Bank of India Vs. Rajesh Agarwal, to assert that such arbitrary and irrational actions, especially those prejudicing a party, require adherence to due process and a fair hearing. They contended that the respondents failed to follow a lawful procedure. Respondents' Arguments: The judgment does not record any specific arguments made by the respondents regarding the procedural impropriety or violation of natural justice. The court noted the respondents' action of forfeiture based on an inquiry report.