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Judgment
Sanjib Banerjee, J.—The petitioner, which was till recently operating berth Nos. 2 and 8 after having mechanised the operations thereat in the Haldia Dock Complex, complains in this petition u/s 9 of the Arbitration and Conciliation Act, 1996 of the arbitrary action of the respondent Port in taking steps to blacklist the petitioner and thus render the petitioner ineligible to obtain other contracts, whether under this Port or elsewhere. The petitioner assails a notice dated November 28, 2012 by which the Port asked it to show cause as to why the petitioner should not be blacklisted. The notice refers to the perceived illegal act on the part of the petitioner to terminate the contract for operating the two berths nearly seven years before the end of the agreed tenure. The substance of the petitioner''s grievance is that since the disputes between the parties--and, consequently, the assessment of whether the termination was warranted in the circumstances--are to be adjudicated upon in an arbitral reference, it would be unfair for it to be blacklisted on the ground of its alleged illegal conduct before the arbitral reference is concluded. The petitioner says that though it has issued a reply to the Port''s notice, it apprehends that the Port has offered it a chance to respond to the charges only to ensure formal compliance with the principles of natural justice; the decision to blacklist the petitioner appears already to have been taken. The petitioner says that the show cause notice is mala fide and has been issued to unfairly prejudice the petitioner.
The petitioner refers to a judgment reported at Rashtriya Ispat Nigam Limited and Another Vs. Verma Transport Company, for the proposition that a notice to show cause as to why a contractor should not be blacklisted would be covered by the arbitration agreement, if there is one, in the relevant contract. It is necessary to dwell awhile on the facts of that case to appreciate the principle enunciated therein. The appellant in that case engaged the contractor for handling and storage of the appellant''s material in Ludhiana. One of the charges brought against the contractor was that the principal person in control of the contractor firm had constituted various other firms and companies and obtained several consignment agency contracts from the appellant pertaining to Delhi, Faridabad, Chandigarh, Ludhiana and elsewhere; that such person conspired with certain officials of the appellant and obtained payment at a much higher rate than permissible on a false pretext; that following an investigation by the Central Bureau of Investigation, criminal proceedings were launched against the relevant person in control of the contractor and the concerned officials of the appellant; and, with a view to avoid the imminent termination of the Ludhiana contract, such person had ostensibly resigned from the contractor firm and the associate concerns. The Ludhiana contract was terminated by the appellant and a notice was issued to the principal person formerly in control of the contractor as to why his concerns should not be blacklisted. The contractor firm lodged a civil suit for grant of permanent injunction restraining the appellant from blacklisting such firm or terminating the consignment agency contract. On an interlocutory application in the suit, an order was passed directing the parties to maintain status quo on both counts: pertaining to the termination of the contract and to blacklisting. The appellant applied u/s 8 of the 1996 Act, citing the arbitration clause in the contract. Such application was rejected by the Trial Court; the order was upheld on a technical ground by the High Court in revision; and, a review sought before the High Court was not entertained. It was in such context that the Supreme Court observed, at paragraph 50 of the report, "that the application filed by the appellants u/s 8 of the 1996 Act was maintainable." The judgments impugned before the Supreme Court were set aside. The legal principle summarised by the Supreme Court is evident from paragraph 43 of the report:
The submission of the learned counsel for the respondents that the two different causes of action having been raised, namely, illegal termination of contract and blacklisting of the firm, section 8 of the 1996 Act was not attracted is devoid of merit; in as much as according to the respondents themselves, both the causes of action arose out of the terms of the contract. What was necessary was to consider the substance of the dispute. Once it is found that the dispute between the parties arose out of the contract, section 8 of the 1996 Act would be attracted.
The Port raises several questions as to the maintainability of the petition. It suggests that the arbitration clause in the subject contract requires an attempt at an amicable resolution of the disputes before resorting to arbitration. The Port also submits that blacklisting, if done, may affect the petitioner in its future prospects and it has nothing to do with the contract covered by the arbitration agreement. The Port insists that the Supreme Court judgment did not find that the matter pertaining to blacklisting was covered by the arbitration agreement in that case, but the Supreme Court only found that the application u/s 8 of the 1996 Act was maintainable. The Port points out that the petitioner company''s objects clause in its memorandum of association indicates that the petitioner was incorporated for the purpose of operating the two relevant terminals at the Haldia Dock Complex; and, as such, since the petitioner is a single venture company it would not prejudice the petitioner if it were to be blacklisted and debarred from participation in future similar tenders floated by the Port. The Port also asserts that a show cause notice pertaining to blacklisting can hardly be challenged and the petition is premature. The Port suggests that the perceived arbitrariness on its part as a statutory body would not be a matter that can be assessed in course of an arbitral reference, where only the contractual disputes between the parties can be adjudicated upon. The substance of the Port''s objection to any ad interim order being passed is that there are serious issues as to the arbitrability of a show cause notice issued for blacklisting, as to whether the disputes pertaining to blacklisting are covered by the arbitration agreement and as to whether such disputes have been referred to arbitration. The Port maintains that a decision by an employer to blacklist a contractor relates to the employer''s assessment as to the desirability of the contractor to be engaged in future works by the employer based on the employer''s perception as to the performance of a contractor; and such matter is de hors the contract and, as such, beyond the pale of the arbitration agreement governing the contract.
The Port refers to a judgment reported at Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd. and Others, and the Constitution Bench judgment reported at S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, to suggest that an assessment as to the arbitrability of a dispute is a precondition for the exercise of authority u/s 9 of the 1996 Act. In the alternative, the Port asserts that even if it is assumed that the disputes pertaining to blacklisting are both arbitrable and covered by the arbitration agreement between the parties, no case has been made out for an extraordinary order to interdict the process merely upon the issuance of the show cause notice. The Port refers to the sketchy pleading at paragraph 5 of the petition and the unsubstantiated statements at paragraph 16 thereof to say that no case on facts has been made out for the order sought at the ad interim stage. Though the Port sought initially to make a distinction between the authority that may be exercised by a Writ Court and the authority that may be exercised by a Civil Court or an arbitrator hearing a complaint relating to blacklisting, it concedes that its character as a public body will determine the assessment whether it is before a Writ Court or it is before a Civil Court or an arbitrator. The Port insists that since the issue of jurisdiction to issue the show cause notice has not been raised, the only ground available to the petitioner would be that the show cause notice is demurrable; in the sense that if the statements contained therein were taken to be correct the order of blacklisting can still not follow. The Port refers to a judgment reported at (2005) 11 SCC 451 (State of U.P. v. Anil Kumar Ramesh Chandra Glass Works) in support of its contention. At paragraph 6 of the report, it was observed that in order to challenge a show cause notice it must be demonstrated that no offence is disclosed or that it has been issued without jurisdiction. The notice in that case was issued under a State Act pertaining to trade tax.
The petitioner retorts that the disputes that form the subject-matter of this petition are covered by the arbitration agreement and the petitioner intends to carry them to the reference. It says that merely because the invocation of the arbitration clause has to be preceded by an attempt at amicable settlement would not render the present petition not maintainable since the very issuance of the notice by the Port evidences the Port''s closed mind and any attempt at an amicable settlement would be an empty formality. In the alternative, the petitioner suggests that in the petitioner issuing the letter following the receipt of the notice, the petitioner has called for an amicable settlement of the disputes pertaining to blacklisting and is, thus, qualified to invoke the arbitration clause and seek interim reliefs in respect of such disputes prior to the commencement of a reference thereon.
The petitioner submits that it is beyond question that a show cause notice issued for blacklisting any person is justiciable, though the grounds for passing an order against such notice may be restricted. The petitioner suggests that if a notice requiring a person to show cause as to why such person should not be blacklisted is challenged in a Court of law, the Court may interdict the notice even at the ad interim stage if a serious issue as to jurisdiction is raised or if mala fides appear on the face of the notice. The petitioner contends that what may be described as mala fide may otherwise be termed as arbitrary; or it may be seen to be a colourable exercise of authority; or done in bad faith mala fides and arbitrariness being different dimensions of the same sin.
On the question of the disputes as to blacklisting not being capable of being referred to arbitration without any attempt at amicable settlement, the petitioner relies on a judgment reported at VISA International Ltd. Vs. Continental Resources (USA) Ltd., and refers to paragraph 38 of the report where, in similar circumstances, the Supreme Court found that once a rigid stand had been taken by the parties and there was no scope for amicable settlement, the arbitration agreement could be invoked. The petitioner emphasises that the real dispute between the parties is not the threat of blacklisting, but it is the alleged non-performance of the petitioner in discharging its obligations under the contract. It is the substance of the dispute rather than the form, the petitioner says, that should engage the Court. The core dispute between the parties, according to the petitioner, is the perceived failure of the petitioner to discharge its obligations under the agreement of October, 2009. The petitioner contends that, at the end of the day. it is for the Court to take a prima facie view on facts as to whether the petitioner pulled out of the agreement without justification. The petitioner refers to an order dated December 13, 2012 passed at the ad interim stage of rival petitions u/s 9 of the 1996 Act filed by the parties and says that though an appeal has been preferred by the Port from such order, the finding at the following passage from the order has not yet been disturbed:
Prima facie, it does not appear that the contractor chose to abandon the work or the site without any justification. The order of October 19, 2012 reveals this Court''s satisfaction of the contractor''s grievance that the administration had taken no initiative to address a law and order situation despite the contractor''s repeated complaints. The disturbance within the Dock Complex appears to have continued unabated for a considerable length of time and even the Port had apprehended that other operators in the Dock Complex would resist the implementation of the arrangement as envisaged by the consent order of September 12, 2012. Indeed, some other operators preferred an appeal from the order of September 12, 2012 but failed in their legal endeavour to scuttle the arrangement agreed to between the Port and the contractor. It must be appreciated that it was the responsibility of the Port to allow the contractor to operate unimpeded in the Dock Complex and it is a matter of regret that despite the order of October 19, 2012, the administration did not render adequate assistance by quelling the unwanted and motivated disturbance fomented by extraneous considerations. On the facts as evident at present, the contractor cannot be burdened by curbing its unfettered right to use and deploy its machinery, equipment and material for which it expended a considerable sum. The letters written by the Port to the administration in September, 2012 reflect the Port''s helplessness and inability to render a congenial atmosphere within its precincts to allow the contractor to continue its operations. In the circumstances, it would be inequitable and inappropriate to impose any condition on the contractor for contractor''s machinery, equipment and material to be removed from the Haldia Dock Complex.
Without accepting in principle that a show cause notice can be assailed on the ground of mala fides, the Port says that the notice of November 28, 2012 was issued prior to the order dated December 13, 2012 and it cannot be said that the very issuance of the notice was mala fide.
A judgment reported at Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, has been placed by the petitioner as to the ambit of the authority of a Civil Court to entertain a suit u/s 9 of the Code of Civil Procedure, 1908. The petitioner insists that if a dispute can be carried to a Civil Court and, by virtue of an arbitration agreement, such dispute has perforce to be made the subject matter of an arbitral reference, it cannot be said that the arbitrator would not have any authority to adjudicate the same. The petitioner has cited a Division Bench judgment of this Court reported at D. Wren International Ltd. and another Vs. Engineers India Ltd. and others, for the proposition that where an arbitration agreement exists between the parties, the High Court in exercise of its power under Article 226 of the Constitution of India would not entertain a writ petition but will require the parties to have their disputes adjudicated in the arbitral reference. The petitioner says that it must necessarily be inferred from the judgment that matters which are capable of being addressed in proceedings under Article 226 of the Constitution would also be capable of being assessed by an arbitrator if there is an arbitration agreement between the principal parties to the writ proceedings.
Apropos the Port''s suggestion that a claim in tort for conduct connected with an agreement may not be covered by the arbitration clause governing the agreement, the petitioner says that it would depend on the width of the arbitration agreement between the parties. The petitioner has referred to a judgment reported at Renusagar Power Co. Ltd. Vs. General Electric Company and Another, ) and has placed several passages therefrom to submit that if the words in the arbitration agreement are wide enough, even a claim in tort in connection with the matrix contract can be carried to the arbitral reference.
It must be noted in the context that the Port has already invited offers for operating the two berths at the Haldia Dock Complex which were covered by the October, 2009 agreement between the parties herein. The immediate concern of the Port may be that the petitioner does not apply again under the global tender floated by the Port. The petitioner has sought to allay the Port''s misgivings on such count by making a statement in court that it would not make an offer for the work that it was forced to abandon. Indeed, if the petitioner did not make such statement and if it appeared that the petitioner was likely to apply for the work, it would have robbed the petitioner of its basic premise for pulling out of the October, 2009 contract.
Notwithstanding at least one recital in the show cause notice referring to public harm being caused upon the petitioner terminating the contract and ceasing to operate the two berths at the Haldia Dock Complex, the substance of the disputes between the parties relates to the alleged failure of the petitioner to discharge its obligations under the October, 2009 contract and the alleged breach on the part of the Port to render a platform for the petitioner to discharge its obligations under the contract. The substance of the disputes between the parties is so intrinsically connected to the matrix contract governed by the arbitration agreement that the petitioner''s contention that the Port''s attempt to blacklist the petitioner pertains to the October, 2009 contract, cannot be rejected out of hand. Blacklisting may be another consequence of the perceived nonperformance of the petitioner under the contract; just as the Port''s claim for damages on such count is another facet thereof. But, prima facie, it appears that both are rooted to the October, 2009 contract and arise therefrom or relate thereto.
It does not, however, follow that if there is an arbitration clause governing a contract and the disputes between the parties have been referred to arbitration or are proposed to be referred to arbitration, the employer cannot blacklist the contractor on the employer''s perception of the dismal performance of the contractor. To begin with, that there is an arbitration agreement between the parties is only a distraction and is of no real significance. If there were no arbitration agreement and if the disputes between the parties were carried to a Civil Court by way of a regular action, the situation would be no different. The mere pendency of an action--whether a civil suit or an arbitral reference--between an employer and a contractor would not preclude the employer from blacklisting the contractor on the basis of the employer''s perception of the performance of the contractor qua the contract. At the same time, the act of blacklisting and even the show cause notice issued leading up to a possible blacklisting are both justiciable; it is an entirely different matter that the extent of interdiction by Court would differ in degrees between the two. A challenge to a show cause notice has, ordinarily, to be on the ground of jurisdiction or ex facie arbitrariness--where the extent of the arbitrariness is obvious in that an order of blacklisting cannot reasonably follow therefrom. The petitioner has not fashioned the present challenge on the lack of authority of the Port to issue the show cause notice. It has assailed the show cause notice on the ground of mala fides.
Mala fides, in the context of an order of blacklisting, would mean a biased action, which is lacking in good faith and is actuated by grudge for any oblique or ulterior purpose. The assessment on such count has to be on the twin tests of whether there is a personal bias or oblique motive and whether it is a valid exercise of authority. The tests would not be met merely because the substance of the disputes between the parties is awaiting adjudication; the comparative strengths of the rival claims would need to be tentatively ascertained even though the parent proceedings may not have commenced. On the facts pertaining to the substance of the disputes between the parties, the Court has, prima facie, held that the petitioner did not pull out from the Haldia Dock Complex without any justification: it may have been compelled to withdraw therefrom in the light of the prevailing circumstances. That is not to suggest that the petitioner''s performance was altogether without any blemish, it only indicates that it has an arguable case in support of its untimely termination of the contract.
But the considerations in assessing an order of blacklisting and a show cause notice issued therefor are qualitatively different. Since the authority of the officer who has issued the notice or the power of the Port on whose behalf the notice has been issued has not been called into question, it has to be seen whether the show cause notice itself is liable to be interdicted. For this, no more than the show cause notice needs to be seen. It may not have made much difference in the end, but the petitioner may have had an arguable case if the notice had been issued after the prima facie view as expressed in the order dated December 13, 2012 had been passed. Equally, that such order is up in challenge in an appeal is not relevant at the present stage since the appeal has not been allowed and the order has not been set aside.
It would also not be fair to assume, particularly, on the basis of the allegations that have been carried to Court by the petitioner, that the enquiry officer would invariably take a decision to blacklist the petitioner, and not take into consideration whatever the petitioner may have to say to dissuade the authority from blacklisting it, including citing the prima facie view of this Court as evident from the order dated December 13, 2012. The petitioner may have jumped the gun somewhat in not waiting for the process to be completed and challenging the show cause notice itself without either asserting that the notice is wanting in authority or adequately establishing at this stage that even if the allegations contained therein were taken to be correct, the petitioner cannot be blacklisted. Though the ostensible challenge now is to the show cause notice, it is really the petitioner''s apprehended blacklisting that the petitioner seeks to complain of in advance. No advance ruling is called for in the circumstances and the petitioner is left to await the outcome of the process kicked off by the show cause notice.
Affidavit-in-opposition be filed by January 3, 2013; reply thereto, if any, may be filed before the matter is taken up as the last "New Motion" on January 8, 2013. It is made clear that the Port has said that the petitioner will have every opportunity to present whatever documents the petitioner may have in support of its defence and the petitioner would be entitled to representation by legal practitioner at the hearing before the enquiry officer. In the event an order of blacklisting is made, the same will abide by the result of the present petition and the petitioner will be permitted to mould the orders sought in the present petition by incorporating a challenge to the order for blacklisting, if passed.
Urgent certified photocopies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.