The Karnataka State Electronics Development Corporation Ltd. vs State of H.P. and Others

Dharam Chand Chaudhary, J.�Aggrieved by the order Annexure P-7 issued by the 2nd respondent, rescinding thereby the agreement dated 30th December, 2013 (Annexure P-3) entered upon the petitioner-Corporation and the 2nd respondent, the petitioner Contractor has filed this petition under Section 9 of the Arbitration and Conciliation Act with a prayer to pass the following order towards interim measures:

"It is, therefore, respectfully prayed that this application be allowed and pending the arbitration proceedings the respondents be restrained by way of interim measures during the pendency of the arbitration proceedings from enforcing the order dated 19.2.2014 passed by the respondent No. 2 Multimedia Educational Content, Teacher Training, Refresher Courses, Monitoring, Interaction White Board, Projectors, Integrated Computer Projects, Computer H/W, manpower, S/W and other allied accessories (i.e. webcam, multifunctional printers, UPS etc.), site preparations (i.e. vinly flooring, furniture and fixtures, electrical fittings, power backup facilities, LAN etc.) & maintenance thereof in 618 GSS, 848 GHS and 5 smart schools in the State of Himachal Pradesh" has been rescinded, the Earnest Money deposited by the petitioner has been forfeited and the petitioner has been blacklisted for 5 years. The respondents may also be restrained from proceeding with the fresh tender invited by them."

The record reveals that the Ministry of Human Resources and Development, Government of India had conveyed approval for providing IT facilities in 618 Government Senior Secondary Schools, 5 Smart Schools and 848 Government High Schools in the State of Himachal Pradesh under the Mega Project of ICT@ Schools Scheme 2011-12. The approved funding pattern with regard to implementation of the scheme was in the ratio of 75:25 i.e. Centre shares: State shares, respectively. In order to extend the benefit of the scheme in the Schools, the Directorate of Higher Education, Himachal Pradesh invited tenders for the supply and installation of IT infrastructure, as provided under the scheme vide notice Annexure P-2. The sole bid of the petitioner-Corporation was accepted and the work of supply of the material and installation of Multimedia Educational Content, Teacher Training, Refresher Courses, Monitoring, Interaction White Board, Projectors, Integrated Computer Projects, Computer H/W, manpower, S/W and other allied accessories (i.e. webcam, multifunctional printers, UPS etc.), site preparations (i.e. vinly flooring, furniture and fixtures, electrical fittings, power backup facilities, LAN etc.) & maintenance thereof in 618 Government Senior Secondary Schools, 848 Government High Schools and 5 smart schools was awarded to the petitioner-Corporation for a sum of Rs. 1,56,94,04,016/- on the terms and conditions find mention in the contract agreement. The letter, whereby the contract was awarded to the petitioner-Corporation dated 31st December, 2013 is Annexure R-2/A. One of the conditions was furnishing of Performance Bank Guarantee equal to 5% of the total bid value by the petitioner-Corporation payable in nationalized bank at Shimla within seven days from the issuance of Annexure R-2/A, the letter of award.

Admittedly, the petitioner-Corporation has failed to furnish the Performance Bank Guarantee within the stipulated period and even within extended period from time to time vide orders Annexure R-2/F and Annexure R-2/G. This has led in rescinding the contract qua execution of the work entered upon between the petitioner-Corporation and the 2nd respondent vide office order dated 19th February, 2014. A sum of Rs. 30,00,000/-, the earnest money deposited along with the tender documents has also been ordered to be forfeited. Not only this, but the petitioner-Corporation has been blacklisted and debarred for a period of five years from taking part in any of the tender to be awarded by the Department of Higher Education, Himachal Pradesh on account of breach of terms and conditions of the agreement/tender.

Clause 30 of tender document deals with the appointment of Arbitrator for settlement of dispute(s) having arisen during the currency of contract. As a matter of fact, it is the Principal Secretary (Education) to the Government of Himachal Pradesh, the named Arbitrator, in Clause 30 of the contract agreement. Clause 30 reads as follows:

"Arbitration

All disputes, differences, claims and demands arising under the contract shall be referred to the Principal Secretary (Education), to the Government of Himachal Pradesh, for final decision and the same shall be binding on all parties. Principal Secretary (Education), to the Govt. of Himachal Pradesh and the selected Service Provider shall make every effort to resolve amicably through direct negotiation, any disagreement or dispute arising between them under or in connection with the work order. If any dispute arises between parties on aspects not covered by this agreement, or the construction or operation thereof, or the rights, duties or liabilities under these except as to any matter the decision of which is specially provided for by the general conditions, such disputes shall be referred to Sole Arbitrator, Principal Secretary (Education), to the Govt. of Himachal Pradesh. Such arbitration shall be governed in all respects by the provision of the Indian Arbitration and Conciliation Act, 1996 and the rules under and any statutory modification or reenactment thereof the arbitration proceeding shall be held in Shimla."

As per arrangement suggested under Clause 30 supra, the Principal Secretary (Education) to the Government of Himachal Pradesh and the representatives of the selected Service Provider i.e. the petitioner-Corporation shall sit together and make efforts to resolve amicably through direct negotiation, any disagreement or dispute having arisen between the parties under or in connection with the work order. Since furnishing of Performance Bank Guarantee within seven days is one of the conditions of the work order (Annexure R-2/A), therefore, dispute qua furnishing of the Guarantee could have been sorted out by the parties through negotiation. This Court feels that had the efforts been made on both sides in right direction, the issue could have been sorted out by this time and the execution of the work either to the petitioner-Corporation or by any other service provider expedited and the benefits under the scheme reached to thousands of students studying in Senior Secondary Schools, High Schools and also Smart Schools covered under the scheme. The Performance Bank Guarantee, according to learned counsel, was furnished, however, admittedly after the order Annexure P-7 rescinding thereby the contract issued by the 2nd respondent. The work has not yet been awarded to any other Service Provider. This Court feels that in case the parties still sit together and find out some solution qua resolution of dispute, which is not serious in nature being pertains only to furnishing of Performance Bank Guarantee, the benefits under the scheme can still be made available to the school children, may be at a little belated stage. Otherwise also, the named Arbitrator is the Principal Secretary (Education) to the Government of Himachal Pradesh, therefore, the petitioner-Corporation and for that matter the Department also is at liberty to approach the Arbitrator with their claims/counter-claims, if any, which relates to the contract agreement or the work order.

In view of the above, this petition stands disposed of with a direction to the petitioner-Corporation to approach within two weeks from today to the Principal Secretary (Education) to the Government of Himachal Pradesh by way of making a representation, highlighting therein the reasons on account of which the Performance Bank Guarantee could not be furnished within the stipulated period. The Principal Secretary (Education) to the Government of Himachal Pradesh shall consider the representation/explanation, so furnished by the petitioner-Corporation and make efforts to sort out the pending issues, if any, between the petitioner-Corporation and the representatives of the Department including the dispute relating to furnishing of Performance Bank Guarantee through negotiation. The Principal Secretary (Education) shall pass appropriate orders, in the manner as directed hereinabove, within four weeks thereafter, so that the matter is not delayed any further. The operation of office order dated 19th February, 2014 (Annexure P-7) shall remain in force till the decision is taken by the Principal Secretary (Education) in the light of this order. In the event of issue is not resolved amicably, or any dispute having arisen between the parties on aspects not otherwise covered under the agreement, the parties will be at liberty to invoke the proceedings in accordance with Arbitration and Conciliation Act.

Pending application(s), if any, shall also stand disposed of.