Concrete Products And ... vs Union Of India (Uoi) And Ors. on 19 October, 2001

    Concrete Products And Construction Co. And Anr. vs Union Of India (Uoi) And Ors.
on 19/10/2001

ORDER

   P.D. Dinakaran, J.

   1. Heard.

   2.1 The second petitioner in W.P. No. 10814 of 1999 is Managing Partner of
the first petitioner -- partnership firm in the said writ, petition. The
petitioner in W.P. No. 11805 of 1999 is a Private Limited Company.

   2.2 The petitioners in both these writ petitions are engaged in manufacture
and supply of Mono Block Concrete Sleepers to the Southern Railways functioning
under the control of the Ministry of Railways, Union of India, for the various
track renewal, construction and gauge conversion projects, pursuant to the
agreements dated 30-3-1984 and 30-1-1983 respectively, which were extended from
time to time under various agreements.

   2.3 The respondent Railway administration have entered into similar
agreements with several contractors under various agreements for supply of Mono
Block Concrete Sleepers for the above-mentioned purpose.

   3.1 Clause 6 of the agreements deals with the payment to the Contrators for
the supply of Mono Block Concrete Sleepers of which Clauses 6.1.2(d), (e) and
(f) are relevant to be referred to, which read as follows :

     "6.1.2 (d) : The Contract or shall be entirely responsible for the safe
custody and protection of the said articles and stores against all risks
excluding all war risks till they are duly utilised in fabrication of wagons and
in case of surplus stores and articles these are delivered back to the President
of India as he may direct. He shall be responsible for any loss, damage or
determination in respect of the said stores and articles while in his possession
and custody of his sub-contractors. The said articles and materials shall at all
time be open to inspection of any officer authorised, by the President of India.
And if the Contractor fails to produce/show the articles and materials before
the Inspecting Officer or otherwise fails to give a true and proper account to
the satisfaction of President of India, the President of India shall, on receipt
of a certificate/report from the said Inspecting officer indicating the quantity
of articles and materials not produced/shown or for which no true or proper
account, could be given, be entitled to recover from him the compensation for
such materials/articles either by deduction from any sums due or any sum which
at any time hereafter may become due to the Contractor, under this or any other
contract. The Certificate/report issued by the Inspecting Officer as aforesaid
shall be final and conclusive and shall not be questioned in any manner
whatsoever, and no dispute shall be raised by the Contractor in this regard. The
rights conferred on the President of India under this clause shall not prejudice
his other rights and remedies available to him under the contract.

     6.1.2. (e) : Should any loss or damage occur or a refund becomes due, the
President of India shall be entitled to recover from the Contractor,
compensation for such loss or damage of the amount to be refunded without
prejudice to any other remedies available to him by deduction from any sum due
or any sum which any time hereafter may become due to the Contractor under this
or any other contract.

     6.1.2. (f) : in the event of the Contractor's failure to fulfil all their
obligations under the contract, the President of India will be entitled to lift
such stores and articles as would be retained in his custody which were supplied
to him free of cost, and against which payments have been made by the President
of India, The rights and remedies available to the President of India under this
clause, is however, without prejudice to his other rights and remedies available
to him under this contract."

   3.2. Clause 11.2 of the said agreements reads as follows :

     "11.2. The Contractor shall exercise utmost economy in the purchase of the
three principal raw materials, escalation will be admitted on the basis of the
actual paid for the respective raw material, subject to a ceiling on the prices
as under :

     (a) in the case of the materials under statutory price control, the price
as applicable on the date of purchase of the said material, in terms of the
Price Control Order.

     (b) Where the material does not come under any statutory price control, the
prices fixed by any recognised agency exercising control on the prices of the
products of their repesentative units, such as Joint Plant Committee. Cement
Corporation, etc.

     (c) in the case of raw material not covered by either of the above, the
lowest price (FOR destination) arrived at on the basis of quotations obtained by
the Contractor for each supply from the various established sources of supply of
the respective raw materials."

   3.3 Clause 16 of the agreements, enables the Government to reserve the right
for book examination, which reads as follows :

     "Clause : 16. Book Examination Clause:

     The Government reserves the right for "Book Examination" as follows :--

     16.1. The Contractor shall, where ever required, produce or cause to be
produced for examination by any Government Officer authorised to in that behalf
any cost or other account, book of account, voucher, receipt of letter,
memorandum, paper and writing or any copy of extract from any documents and also
furnish information and returns verified in such manner as may be required, in
any way relating to execution of this contract or relevant for verifying or
ascertaining the cost of execution of this contract (the decision of such
Government Officer on the question of relevancy of any documents, information or
return, being final and binding on the parties). The obligation imposed by this
clause is without prejudice to the obligations of the Contractor under any
statute, rules or orders binding on the contract.

     16.2. The Contractor, shall if the authorised Government Officer so
requires, (whether before or after the prices have been finally fixed) afford
facilities to the Government Officer concerned to visit the Contractors works
for the purpose of examining the processes of manufacture and estimating or
ascertaining the cost of production of the articles. If any portion of the work
be carried out by a sub-contractor or any subsidiary or allied firm or company,
the authorised Government Officer shall have power to secure that the books of
such subcontractor, or any subsidiary or allied firm or company shall be open to
his inspection."

   3.4 Indian Railway Standard Conditions of Contract and other connected
Proforma Applications are made as a part and parcel of the respective agreements
entered into between the petitioners and the Railway administration, as per
Clause 24 of the agreements, which reads as follows :

     "Clause 24. Indian Railway Standard Conditions of Contract (Annexure 'A')
as correct as per slip attached thereto, Indemnity Bond Proforma (Annexure 'B')
. Special Indemnity Bond Proforma (Annexure 'C'), Indian Railway Standard
Specification for BG prestressed concrete sleepers. Revised August 1981
(Annexure 'D'). Draft Indian Railway Standard specification for unquoted stress
relieved 3 ply 3 mm strand for presetressed concrete sleepers (Annexure 'E'),
RDSO's drawing No. RDSO/T2495 Alt. I (Annexure 'F') , RDSO's Drawing No.
RDSO/T-2496 (Annexure 'G') RDSO's drawing No. RDSO/T-2466 (Annexure 'H') and
RDSO's Drawing No. RDSO/T 2468 (Annexure 'I') attached to his letter will form
part of the contract to the extent they are not superseded by the above
clauses."

   4.1 Clause 1600 of the Indian Railway Standard Conditions of Contract deals
with the use of raw materials secured with Government assistance, which reads as
follows:

     " 1600. Use of Raw Materials secured with Government assistance.

     1601.

     (a) Where any raw material is procured for the execution of a contract with
the assistance of the Government rendered in the form a permit, or licence or
quota certificate/essentiality certificate or release order Issued by or on
behalf of or under the authority of the Government or by an officer empowered in
that behalf, or

     (b) Where the raw material is issued to the contractor from Government
stock, or

     (c) Where advance payments are made to the contractor to enable him to
purchase the raw material, or

     (d) Where raw material is arranged by the Government, the contractor --

     i. shall hold such material as trustee for the Government,

     ii. shall use such materials economically and solely for the purpose of
contract.

     iii. shall not dispose of the same without previous permission in writing
of the purchaser, and

     iv. shall render due account of such material and return to the Government
at such place as the Purchaser may direct all surplus or unserviceable material
that may be left after the completion of the contract or its termination for any
reason whatsoever.

     On returning such material, the contractor shall be entitled to such price
therefor, as the Purchaser, may fix having regard to the condition of such
material.

     1602. Where the contract is terminated due to any default on the part of
the contractor, the contractor shall pay all transport charges incurred for
returning any material up to such destination as may be determined by the
Purchaser and the decision of the Purchaser in that behalf shall be final and
binding on the contractor.

     1603. If the contractor commits breach of any of the conditions in this
clause-specified, he shall, without prejudice to any other liability, penal or
otherwise, be liable to account to the Government for all moneys, advantages or
profits accruing from or which, in the usual course, would have accrued to him
by reason of such breach.

     1604. Where the stores manufactured or fabricated by the contractor out of
the material arranged or procured by or on behalf of the Government are
rejected, the contractor shall, without prejudice to any other right or remedy
of the Government, pay to the Government, on demand, the cost, price or market
value of all such materials whichever is greater."

   4.2 Clause 2500 of Indian Railway Standard Conditions of Contract deals with
corrupt practices, which reads as follows :

     "2500. Corrupt Practices.

     2501. The contractor shall not offer or give or agree to given to any
person in the employment of the purchaser or working under the orders of the
purchaser any gift or consideration of any kind as an inducement or reward for
doing or forbearing to do or for having done or forborne to do any act in
relation to the obtaining or execution of the contract or any other contract
with the purchaser or Government or for showing any favour or forbearing to show
disfavour to any person in relation to the contract of any other contract with
the Purchaser or Government. Any breach of the aforesaid condition by the
contractor, or any one employed by him or acting on his behalf (whether with or
without the knowledge of the contractor) or the commisison of any offence by the
contractor or by anyone employed by him or acting on his behalf under Chapter IX
of the Indian Penal Code, 1860 or the Prevention of Corruption Act, 1947 or any
other Act enacted for the prevention of corruption by public servants shall
entitle the purchaser to cancel the contract and all or any other contracts with
the contractor and to recover from the contractor the amount of any loss arising
from such cancellation in accordance with the provisions of Clauses 0600 and
0700.

     2502. Any dispute or difference in respect of either the interpretation,
effect or application of the above condition or of the amount recoverable
thereunder by the Purchaser from the contractor, shall be decided by the
purchaser, whose decision thereon shall be final and binding on the contractor.

   4.3 Condition 2900 of Indian Railway Standard Conditions of Contract provides
an arbitration clause in the event of any question, or dispute, arising under
the special conditions of the contract between the contractors and the Railway
administration, which reads as follows :

     "2900. Arbitration

     (a) in the event of any question, dispute or difference arising under these
conditions or any special conditions of contract, or in connection with this
contract (except as to any matters the decision of which is specially provided
for by these or the special conditions) the same shall be referred to the sole
arbitration of a person appointed to be the arbitrator, by the General Manager
in the case of contracts entered into by the Zonal Railways and Production
Units, by any Member/any Additional Member of the Railway Board, in the case of
contracts entered into by the Railway board; and by the Head of the Organisation
in respect of contracts entered into by the other organisations under the
Ministry of Railways. If, however, the arbitrator is a railway servant, he will
not be one of those who had an opportunity to deal with the matters to which the
contract relates or who in the course of their duties as railway servants have
expressed view on all or any of the matters under dispute or difference. The
award of the arbitrator shall be final and binding on the parties to this
contract.

     (b) in the event of the arbitrator dying, neglecting or refusing to act or
resigning or being unable to act for any reason, or his award being set aside by
the Court for any reason, it shall be lawful for the authority appointing the
arbitrator to appoint another arbitrator in place of the outgoing arbitrator in
the manner aforesaid.

     (c) It is further a term of this contract that no person other than the
person appointed by the authority as aforesaid should act as arbitrator and that
if for any reason that is not possible, the matter is not to be referred to
arbitration at all.

     (d) The arbitrator may from time to time with the consent of all the
parties to the contract enlarge the time for making the award,

     (e) Upon every and any such reference, the assessment of the cost
incidental to the reference and award respectively shall be in the discretion of
the arbitrator.

     (f) Subject as aforesaid, the Arbitration Act, 1940 and the rules
thereunder and any statutory modifications thereof for the time being in force
shall be deemed to apply to the arbitration proceedings under the clause.

     (g) The venue of arbitration shall be the place from which the acceptance
note is issued or such other place as the arbitrator at his discretion may
determine.

     (h) in this clause the authority to appoint the arbitrator includes, if
there be no such authority, the officer who is for the time being discharging
the functions of that authority whether in addition to other functions or
otherwise."

   5.1 Even though, the respondent Railway administration themselves initially
supplied High Tensile Steel Wire (hereinafter referred to as 'HTS wire') which
is used in the said sleepers, due to some difficulties experienced by the
contractors, liberty was given to the contractors to procure these HTS wires
from known sources for the lowest prevailing market price, requiring the
contractor to exercise utmost economy in the prices of HTS wires, based upon the
lowest of the three quotations obtained from the approved sources (hereinafter
referred to as the "three quotation system') and not to claim anything in excess
of the lowest market price at the time of procuring the HTS wires.

   5.2 if the cost of the raw materials as indicated above is increased or
decreased, the contract price shall correspondingly vary with effect from the
date of such increase or decrease, subject to the production of vouchers in
support of the claim for escalation. The agreement further provides that the
contractors must exercise utmost economy in the purchase of the principal raw
materials and that escalation will be admitted on the basis of the actual price
paid for the respective raw materials, subject to the conditions specified in
the said agreement. The agreement also provides for wage escalation. The claims
for materials and wage escalation or de-escalation are to be submitted by the
contractors, after completion of every six months of supply.

   5.3 It is stated that the petitioners had been purchasing HTS wires from
reputed manufacturers, after obtaining three quotations and placing orders with
reference to the lowest quotation and using the same in the manufacture of
sleepers, as per the terms of the agreement; that the petitioners had been
raising bills for purchase of HTS wires periodically and claiming escalations
every six months, as per the agreement. enclosing all necessary supporting
documents, and that the respondents, after checking the quotations and supported
documents and examining the escalations claimed, admitted such claims and also
made payments for supply of Mono Block Concrete Sleepers up to November, 1994
and September, 1995 to the petitioners in W.P. Nos. 10814 and 11805 of 1999. as
covered by agreements dated 27-9-1990 and 9-12-. 1991 respectively.

   5.4 However, by letters even dated 12-7-1997 of the second respondent herein,
which are impugned in these writ petitions, the respondents proposed to recover
a sum of Rs. 1,80,92,462/- from the petitioner in W.P. No. 10814 of 1999 and a
sum of Rs. 1,78,09,789/- from the petitioner in W.P. No. 11805 of 1999, towards
the excess payment made for the HTS wires purchased by the petitioners in
respect of earlier completed contract for supply of 7,00,000/- Sleepers and
7,50,000 Sleepers respectively, alleging that the claim made by the petitioners
was more than the then prevailing market price of the HTS wire.

   5.5 The proceedings of the second respondent dated 12-7-1997 impugned in W.R
No. 10814 of 1999 reads as follows :

     "No. W 456/4/CS/HTS Dated 12-7-97 M/s. Concrete Products and Construction
Company (Factory at Tiruvalam) No. 766 Poonamallee High Road Chennai-600010.
Dear Sir.

     Sub : Recovery towards excess cost of HTS wire reimbursed to concrete
sleeper manufacturers for the period prior to 8-11-94.

     Ref: Agreement No. CS/3/CE of 1990 dt. 27-9-90 entered into between you and
the Railway administration.

     As per the agreement you were required to purchase HTS wire from the open
market and supply duly exercising utmost economy and for purchases made, this
Railway Administration reimbursed the amount.

     The Railway Administration after making thorough enquiries had ascertained
the market price prevailing during the relevant period of supply of HTS wire by
you and found that the reimbursement claimed by you was more than the reasonable
rates prevailing.

     You are aware that the recovery towards excess reimbursement for the HTS
wire purchased by you after 8-11-94 has already been effected. In response of
HTS wire purchased by you piror to 8-11-94, the reimnbursement claimed by you
being more than the prevalent market price has resulted in undue loss to the
public exchequer amounting to Rs. 1,80,92,462/-.

     You are therefore hereby put on notice to the effect that recoveries will
be made from the sums due to you which will be strictly in accordance with law.

     Yours faithfully,

     Sd/-

     For General Manager Chief Engineer."

   5.6 The proceedings of the second respondent dated 12-7-1997 impugned in W.P.
No. 11805 of 1999 reads as follows :

     "No. W 456/4/CS/HTS dated 12-7-97 M/s. Kottukulam Engineers (Pvt.) Ltd.,
(Factory at Bommidi) No. 706 Poonamallee High Road Chennai-600010. Dear Sirs,

     Sub : Recovery towards excess cost of HTS wire reimbursed to concrete
sleeper manufacturers for the period prior to 8-11-94.

     Ref : Agreement No. CS/3/CE of 1990 dt. 27-9-90 entered into between you
and the Railway administration.

     As per the agreement you were required to purchase HTS wire from the open
market and supply duly exercising utmost economy and for purchases made, this
Railway Administration reimbursed the amount.

     The Railway Administration after making thorough enquiries had ascertained
the market price prevailing during the relevant period of supply of HTS wire by
you and found that the reimbursement claimed by you were more than the
reasonable rates prevailing.

     You are aware that the recovery towards excess reimbursement for the HTS
wire purchased by you after 8-11-94 has already been effected. In respondent
(sic) of HTS wire purchased by you prior to 8-11-94, the reimbursement claimed
by you being more than the prevalent market price has resulted in undue loss to
the public exchequer amounting to Rs. 1,78,09,789/-.

     You are therefore hereby put on notice to the effect that recoveries will
be made from the sums due to you, which will be strictly in accordance with law.

     Yours faithfully. Sd/-

     For General Manager Chief Engineer."

   5.7 On receipt of the said impugned proceedings dated 12-7-1997, the
petitioners, by their representation even dated 6-8-1997 requested the
respondent Railway administration to furnish the following details :

     (i) the periods for which excess payments were computed;

     (ii) the market price at different relevant periods that was assessed with
specific reference to basic price, tax, excise-duty, etc: and

     (iii) a statement justifying the demand of Rs. 1,80,92,462/- in the case of
the petitioner in W.P. No. 10814 of 1999 and Rs. 1,78,09,789/- in the case of
the petitioner in W.P. No. 11805 of 1999.

   5.8 Even though, on receipt of the letters from the petitioners, the
respondent Railway administration by their proceedings dated 8-9-1997 furnished
the statement for arrving at the amount, namely a sum of Rs. 1,80,92,482/- in
the case of the petitioner in W.P. No. 10814 of 1999 and a sum of Rs.
1.78.09.789/- in the case of the petitioner in W.P. No. 11805 of 1999, the
petitioners contend that they had not been given any opportunity before arriving
at such quantum, except furnishing the statements along with letter dated
8-9-1997. Hence, the petitioners, again, by their letters even dated 13-10-1997,
explained their inability to continue the supply of Mono Block Concrete
Sleepers, if the proposed recovery of a sum of Rs. 1,80,92,462/- in the case of
the petitioner in W.P. No. 10814 of 1999 and a sum of Rs, 1,78,09,789/- in the
case of the petitioner in W.P. No. 11805 of 1999 is given effect to, as nothing
would be left for the petitioners, after payment of sales tax and excise duty.

   5.9 The petitioners also submit that in the case of other similar
contractors, the respondent Railway administration have reckoned the period of
recovery only from April, 1992. However, it is contended, that the respondent
Railway administration proposed to recover from the petitioners from March,
1989, which, according to them is arbitrary, unreasonable and discriminatory.
Hence, the petitioners, by their representation even dated 22-10-1997, requested
the respondent Railway administration to drop the Issue of recovery for the
period prior to April, 1992 without prejudice to the contention that the entire
recoveries made by the respondent Railway administration are not maintainable.

   5.10 But, in the meanwhile, the respondent Railway administration have
deducted a sum of Rs. 1,69,78,883/- in the case of the petitioner in W.P. No.
10814 of 1999, and a sum of Rs. 1,78,09,789/- in the case Of the petitioner in
W.P. No. 11805 of 1999 from the supply bills claimed by them for supply of
Sleepers for the subsequent period, viz., after December, 1994 in the case of
the petitioner in W.P. No. 10814of 1999, and after November. 1994 in the case of
the petitioner in W.P. No. 11805 of 1999.

   5.11 Hence, the petitioners in W.P. No. 10814 of 1999 seek a writ of
Certiorarified Mandamus calling for the proceedings of the respondents No. 2
made in No. W.456/4/ CS/HTS dated 12-7-1997 and consequently direct the
respondent to refund the amount of Rs. 1,69,78,883/- withheld by the respondents
from the payment due to the petitioners in respect of the supplies of Sleepers
effected based on the Contract dated 7-2-1996 together with interest at 18% per
annum from the date of withholding till the date of payment and the petitioner
in W.P. No. 11805 of 1999 seeks a writ of Certiorarified Mandamus calling for
the proceedings of the respondents No. 2 made in No. W.456/4/CS/HTS dated
12-7-1997 and quash the said proceedings of the respondent dated 12-7-1997 and
consequently direct the respondent to refund the amount of Rs. 1,78,09,789/-
withheld by the respondents from the payment due to the petitioners in respect
of the supplies of Sleepers effected based on the Contract dated 9-12-1991
together with interest at 18% per annum from the date of withholding till the
date of payment.

   6.1 Mr. R. Krishnamoorthy, learned senior counsel appearing for the
petitioners in W.P. No. 10814 of 1999 and Mr. R. Muthukumarsamy, learned senior
counsel appearing for the petitioner in W.P. No. 11805 of 1999 contend that :--

     (a) the impugned recoveries by the respondent Railway administration are
arbitrary, unreasonable, discriminatory and without jurisdiction, and therefore,
violative of Article 14 of the Constitution of India;

     (b) the respondent Railway administration, recovered the alleged excess
cost paid towards the HTS wire from other Contractors only from the year April,
1992 whereas, the respondent Railway administration proposed to recover the same
from March, 1989 from the petitioners by the impugned proceedings, and
therefore, the same is discriminatory and violative of Article 14 of the
Constitution of India;

     (c) the impugned recoveries are also violative of principles of natural
justice, as the respondent Railway administration had not given any reasonable
opportunity to the petitioners before arriving at the quantum of amount sought
to be recovered from the petitioners;

     (d) when there is a denial of a breach of contract on the part of the
contractor, unless the claim and the breach of contract is established through a
Court of law, no amount can be recovered, as held in V.P. Kunhammed v. State of
Kerala, reported in 1999 (2) KLJ 678;

     (e) the power to recover the excess amount paid, provided under the terms
of the agreement, could be exercised by the respondent Railway administration
only in the case of admitted liability but not in the case of a disputed
liability as held in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli,
reported in AIR 1987 SC 1359;

     (f) even though Clause 29 of Indian Railway Standard Conditions of Contract
provides for arbitration, in the event of any question, dispute or difference
arising under these conditions or any special conditions of contract, or in
connection with contract with the Railway administration, the same is not a bar
to agitate against the violations of the principles of natural justice and
arbitrary, unreasonable and irrational exercise of powers by the respondents,
particularly when the arbitration clause is unworkable as no officers of the
respondent Railway administration could be conferred with the powers of an
arbitrator when a dispute arises between the contractor and the decision of the
Railway Board itself, as the impugned recoveries had been ordered pursuant to
the decision of the Railway Board, which is a superior authority to any Officer
who would be appointed as an arbitrator;

     (g) The discretion conferred on the respondent Railway administration to
recover the excess amount paid, should not be exercised arbitrarily and
unreasonably;

     (h) once it is fairly stated in the counter-affidavit filed by the
respondent Railway administration that the Zonal Level Sub committee is yet to
determine the rates payable for the HTS wires, there cannot be any pre-decided
recovery and therefore, the amount already recovered should be refunded to the
petitioners, of course, without prejudice to the right of Railway administration
to issue notice to the contractors for examining whether any amount was
excessively paid to the petitioners and whether, any amount has to be recovered
from the petitioners out of the current supply bills, striking out an equal
treatment to the petitioners as in the case of similar contractors: and

     (i) in any event, as found in the report of the Dy. Inspector General of
Police (Anti corruption Cell-CBI) addressed to the Ex. Director Track (M),
Railway Board, dated 15-

     3-2001, the respondent Railway administration should consider the case of
the petitioners accepting that the three quotation system contains incomplete
safeguards and provides for substantial savings to the Railways, when compared
to free supply system and consequently should satisfy that no amount is
recoverable from the petitioners.

   6.2 The learned senior counsel for the petitioners submit that similar
recoveries were also made from the contractors, who also supplied Mono Block
Concrete Sleepers to die respondent Railway administration , and the same were
challenged before the High Courts of Andhra Pradesh and Karnataka.

   6.2-2 The learned senior counsel invited my attention to writ petition No.
13452/1997 filed by Rayalaseema Concrete & Sleepers Private Ltd.. Secunderabad
to challenge an identical recovery proceedings by the respondent Railway
administration, wherein the Andhra, Pradesh High Court by order dated 16-10-1997
held as follows :

     "After having heard the learned counsel for the petitioners and the learned
Standing Counsel for the Railways, this writ petition can be disposed of at
admission stage.

     The proceedings dated 16-6-1997 seeking to recover certain amount from the
petitioner is assailed in this writ petition. The principal grievance of the
petitioner is that before passing the order which has an adverse effect, the
petitioner has not been put on notice and therefore, it is in violation of the
principles of natural justice. To verify the factual state of affairs, learned
Standing Counsel for Railways was directed to intimate this Court whether any
notice was issued to the petitioner before passing the impugned order. The
learned counsel fairly submits that no such notice was issued to the petitioner.

     In view of the above, I need not go further into the matter. Suffice it to
say that the impugned proceedings suffer from infraction of principles of
natural justice as the petitioner was not issued with any notice before passing
the impugned order. Therefore, without going into the merits of the case, the
writ petition is allowed and the impugned order is quashed. However, it is open
for the respondent to Issue show cause notice and then pass final orders taking
into consideration the explanation. If any, submitted by the petitioner pursuant
to such show cause notice."

   6.2-3 The learned senior counsel also invited my attention to an order dated
8-12-1997. In W.P. No. 21032 of 1997 filed by M/S. Malu Sleepers Private
Limited, Bangalore and W.P. No. 14697 of 1997 filed by M/s. Sri Maruthi
Builders, Bangalore to challenge an identical recovery proceedings by the
respondent Railway administration, wherein the Karnataka High Court has held as
under :

     "Petitioners entered into agreements with Southern Railways for manufacture
and supply of ESC Sleepers. It is not in dispute that as per the agreements.
Contractors under the works contract were required to purchase HTS wire from the
open market and use them in the work. According to the Department, petitioners
had to exercise utmost economy in the purchase and the Railway administration
was to reimburse the amount. In pursuance of the said contract, petitioners were
purchasing HTS wire at the price which had been intimated to the Railways. It is
not in dispute that Railways was reimbursing the said cost. There is however a
dispute as to whether Railways had agreed to the said price as contended by the
petitioners or not. Be that as It may.

     2. When the matter stood thus. Railways informed the petitioners that from
8-11-1994 HTS wire should not be purchased at the earlier stipulated price.
Apart from the said direction. Railways also purported to recover from the
petitioners alleged excess price which had been received by the petitioners in
regard to HTS wire vide Annexure-C dated 12-7-1997 in W.P. No. 21032/97 and
Annexure-C dated 11/12-12-1996 in W.P. No. 14697/97. Petitioners are aggrieved
by the said recovery and has filed these petitions for quashing of Annexure-C in
both the petitions.

     3. When the matter came up today, parties agreed that there is a provision
for arbitration in the contracts between the parties and therefore, the matter
will have to be settled in accordance with the provision for arbitration
contained in the contracts.

     4. In view of the said submission, these petitions are disposed of
recording the submission that parties have agreed to refer the disputes between
the parties relating to Annexure-C in both the petitioners to arbitration under
arbitration clause 2900.

     5. Having regard to the fact that dispute is being referred to arbitration,
the Railways cannot enforce recovery of the amount claimed under Annexure-C in
both the petitions pending decision by the arbitration. Accordingly, Railways
are directed not to recover any amount from this day pending decision of the
arbitrator."

   7.1-1 Per contra, the learned Additional Solicitor General placing reliance
on the Bareilly Development Authority v. Ajay Pal Singh , contends that no writ
will lie under

   Article 226 of the Constitution of India so as to compel the respondent
Railway administration to remedy a breach of a contract which is pure simple and
non-statutory.

   7.1-2 The learned Additional Solicitor General also invited my attention to
the decision in Radhakrishna Agarwal v. State of Bihar . Premji Bhal Parmar v.
Delhi Development

   Authority , and D.F.O. v. Biswanath Tea

   Company Limited and contends that where

   the contract entered into between the State and the person aggrieved is non-
statutory and purely contractual and the rights are governed only by the terms
of the contract, no writ or order can be issued under Article 226 of the
Constitution of India, and therefore, the rights and liabilities of the
petitioners/contractors and much less the remedies sought for, in the event of
any violation to such rights, could be determined only within the terms of
agreement, which are pure, simple and non-statutory invoking arbitration clause
under 2900 of Indian Railway Standard Conditions of Contract, and if that be so,
it is contended that this Court is barred from going into the alleged
arbitrariness and unreasonableness on the part of the respondent Railway
Administration.

   7.2 On merits, learned Additional Solicitor General referring to the averment
in the paragraph 3 of the counter affidavit, contends that the respondent
Railway Board undertook the review of the rates quoted for HTS wire by all the
contractors who supplied the Mono Block Concrete Sleepers to respondent Railway
administration, pursuant to serious complaints of mal practice found in purchase
of HTS wire and thus came upon the supplies affected by the Contractors. Upon
such review and when compared with rates quoted by other Zonal Railways, it was
found that the petitioners had claimed exorbitant rates for the procurement of
HTS wire far and more above the then prevailing market rate.

   7.3 Learned Additional Solicitor General also submits that even though the
railway, board appointed the High Power Committee, on the basis of opinion given
by learned Solicitor General of India, consisting of senior railway officers to
go into the irregularities in the quotations for supply of HTS wire, quoting
above the normal market rate running to several crores of rupees, the High Power
Committee faced certain difficulties to coordinate with Zonal Railways and
therefore, appointed Zonal Level Sub-committees to enquire and to unearth the
scam.

   7.4 According to learned Additional Solicitor General, the Zonal Level Sub-
committee would be constituted and action would be taken on urgency basis and
till such decisions are taken based on the Committee's report, the amount
recovered from the petitioners would not be refunded, as the recoveries made are
fully justified as the petitioner had claimed excess amount than the then
prevailing market price of HTS wire and therefore, contends that unless Zonal
Level Sub-committee comes to a conclusion and submits its report as to the rates
for the HTS wire, the petitioners are not entitled for the refund of the amount
recovered from them.

   7.5 However, learned Additional Solicitor General is not disputing the fact
that the respondent Railway administration is party to the order dated
16-10-1997 in W.P. No. 13452 of 1997 in the Andhra Pradesh High Court and order
dated 7-12-1997 in W.P. Nos. 21032 and 14697 of 1997 in the Karnataka High
Court.

   7.6 During the course of arguments, the learned Additional Solicitor General
was required to find out whether the Chairman of the Railway Board or persons of
the same rank as members of the Board could act as arbitrators, and the learned
Additional Solicitor General on instructions from the respondent Railway
administration informed that the Railway Board is prepared to appoint one N. K.
Chidambaram to act as an arbitrator.

   8. In the light of the above divergent contentions advanced on behalf of the
petitioners and the respondents. I am obliged to decide on the following issues
:

     i. Whether judicial review is permissible on the disputes relating to non-
statutory contracts, under Article 226 of the Constitution of India?

     ii. Whether judicial review, conferred under Article 226 of the
Constitution of India, is benighted by the narrow conceptualism on the matrix of
non-statutory contracts, ignoring unreasonable, arbitrary, discriminatory
exercise of powers in violation of Article 14 of the Constitution of India and
the principles of natural justice, by the respondent Railway administration?

     iii. Under the context of the case, what relief the petitioners are
entitled for?

   9.1 Issue 1 : Whether judicial review is permissible on the disputes relating
to non-statutory contracts, under Article 226 of the Constitution of India?

   9.2 Admittedly, the petitioners have entered into a non-statutory contract
with the respondent Railway administration for supply of Mono Block Concrete
Sleepers for the various track renewal, construction, and gauge conversion
projects and accordingly supplied the Mono Block Concrete sleepers to the
respondent Railway administration, pursuant to the agreements dated 30-3-1984
and 30-1-1983 respectively.

   9.3 Such contract does nut change the legal character merely because the
other party to the contract is a State owned body as held in Lekh Raj Sairamdas
Lalvani v. N. M. Shan, Deputy Custodian-cum-Managing Officer .

   9.4 It is also well settled in law that no writ will lie to get rid of
contractual obligations as held in State of Punjab v. Balbir Singh .

   9.5 Merely because Clauses 6.1.2(d), (e) and (f) of the agreements dated
30-3-1984 and 30-1-1983 entered into between the petitioners and the respondent
Railway administration collectively provides the respondent Railway
administration, for recovery of loss of dues from the contracting party and
Clause 2501 of the Indian Railway Standard Conditions of Contract enables the
respondent Railway administration to proceed against the contractors for any
breach of conditions of contract under the provisions of the Prevention of
Corruption Act, the same, by themselves, would not bring the enforcement of the
terms of the agree merit or get rid of such contractual obligation within the
fold of Article 226 of the Constitution of India, which can only be made by
appropriate arbitration proceedings or civil proceedings, as held in Divisional
Forest Officer v. Bishwanath Tea Co. . The right of the parties shall be
determined only by the terms of the contract, after such contract has been
validly entered into, even though one of the parties is a statutory authority
and that irrespective of cause of action for seeking any relief on a breach of
contract, which is pure and simple, such remedy could be sought only before the
Civil Court, but not by invoking Article 226 of the Constitution of India, as
per the decision of the Apex Court in Bareilly Development Authority v. Ajai Pal
Singh . The same are the views of the Apex Court in Radhakrishna Agarwal case.
Premji Delhi Development case.

   9.6 When a contract entered into by the State is non-statutory and purely
contractual, the relations are no longer governed by the constitutional
provision, but by legally valid contract, which determines the rights and
obligations of the parties inter se. Admittedly, Clause 11 of the agreement
contemplates that the contractor shall exercise utmost economy in the purchase
of raw materials; clause 12 of the agreement enables the government to reserve
the tight for book examination; Indian Railway Standard Conditions of Contract
are applicable to the impugned contracts as per Clause 24 of the agreement: in
turn. Clause 1600 of the Indian Railways Standard Conditions of Contract
expressly deals with the purchase of raw materials and the payments the
contractors are entitled to; Clause 2500 of the Indian Railways Standard
Conditions of Contract prevent the corrupt practices; and Clause 2900 of the
Indian Railways Standard Conditions of Contract provides an arbitration in the
event of any question or dispute arising under the contract between the
contractor and the Railway administration. In this sphere, the parties can claim
right conferred upon them by the contract; in the absence of any statutory
obligations on the part of authority in the said contract, only as provided
under the contract itself, and therefore, normally, no writ can be issued under
Article 226 of Constitution of India to compel the authorities to remedy a
breach of such non-statutory contract.

   9.7 Issue No. 1 is answered accordingly, however, subject to the decision in
Issue No. 2.

   10.1 Issue : 2 -- Whether judicial review, conferred under Article 226 of the
Constitution of India, is benighted by the narrow conceptualism on the matrix of
non-statutory contracts, ignoring unreasonable, arbitrary, discriminatory
exercise of powers in violation of Article 14 of the Constitution of India and
the principles of natural justice, by the respondent Railway administration?

   10.2 In exceptional cases, as held in State of Karnataka v. Rameshwara Rice
Mills, Thirthahalli, reported in AIR 1987 SC 1359, the powers of the State under
an agreement entered into by it with a private person providing for assessment
of damages for breach of conditions of the agreement and recovery of the
damages, is confined only to those cases where the breach of conditions is
admitted or it is not disputed, the right of the State Government to assess
damages would arise only if the breach of conditions is admitted or if no issue
is made of it. In the instant case, the breach is not admitted. Therefore,
unless the claim is established through a Court of law, no amount can be
recovered, as held in V. P. Kunhammed v. State of Kerala, reported in 1999 (2)
KLJ 678 following the ratio in State of Karnataka v. Rameshwara Rice Mills,
Thirthahalli, reported in AIR 1987 SC 1359.

   10.3.1 Admittedly, the High Power Committee was constituted at the opinion of
the learned Solicitor General of India, by the Apex body of the Railway
administration namely, the Railway Board, to go into irregularities said to have
committed by the contractors in the matter of supply of HTS wire for a higher
rate over the market price prevailed at the relevant point of time. Even though
learned Additional Solicitor General contends that due to certain difficulties
High Power Committee could not hold an enquiry and consequently, Zonal Level
Sub-committees were constituted, the respondent Railway administration has not
disclosed what are the difficulties which necessitated the respondent Railway
Board to delegate the enquiries required to be conducted by the High Power
Committee to the Zonal Level Sub-committee. In the absence of any details of
such difficulties, I do not find any justification on the part of the Railway
Board to delegate the enquiry to the Zonal Level Subcommittee, 10 go into the
Irregularities, because they are admittedly, far subordinate to the High Power
Committee, constituted by the Apex body of the respondent Railway
administration, namely the Railway Board. That apart, the Zonal Level Sub-
committee, has to be constituted only among the officers in the Zonal Level,
namely Southern Railways, who have acted on behalf of the respondents herein --
Southern Railways, as parties to the impugned agreements dated 30-3-1984 and
30-1-1983.

   10.3.2 It is well settled in law, as held in State of Karnataka v. Rameshwara
Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359 case that a right to
adjudicate upon an issue relating to a breach of condition of the contract
cannot be said to flow from or is inhered in the right conferred to assess the
damages arising from a breach of conditions. The power to assess damages is a
subsidiary and consequential power and not the primary power and therefore, even
the respondent Southern Railways is empowered to decide upon the question of
breach as well as the quantum of damage, the adjudication of arbitration by the
Zonal Level Sub-committee of the Southern Railways under the breach of contract,
therefore cannot be sustained under law because, a party to the agreement cannot
be an arbiter in Its own cause.

   10.3.3 It is also well Settled in law the interests of justice and equity
require that where a party to a contract disputes the committing of any breach
of conditions, the adjudication should be by an independent person or body and
not by the other party to the contract as held in State of Karnataka v.
Rameshwara Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359.

   10.4.1 The Apex Court in LIC v. Escorts Ltd reported held that a judicial
review is permissible even in the contractual transactions where it offends
Article 14 of the Constitution of India on the ground of arbitrariness.

   10.4.2 Similarly, in Tula Cellular v. Union of India , a judicial review
would apply to the exercise of contractual powers by the Government bodies in
order to prevent arbitrariness for reviewing not the merits of the decision in
support of which the application for judicial review is made but the decision
making process itself, on the ground that :--

     i. whether a decision-making authority exceeded its powers?

     ii. committed an error of law,

     iii. committed a breach of the rules of natural justice;

     iv. reached a decision which no reasonable Tribunal would have reached: or

     v. abused its powers, and such judicial review can be classified under
irregularity, irrationality and procedural impropriety.

   10.4.3 Again, as held in Whirl Pool Corporation v. Registrar of Trade Marks ,
the power to issue prerogative

   writs under Article 226 of the Constitution of India is plenary in nature and
is not limited by any other provision of the Constitution. The High Court,
having regard to the facts of the case, has discretion to entertain or not to
entertain a writ petition. The High Court, however, has imposed upon itself
certain restrictions one of which is that if an effective and efficacious remedy
is available, the High Court would not normally exercise its jurisdiction. But
the alternative remedy has been consistently held, by the Supreme Court, not to
operate as a bar in at least three contingencies namely :--

     i. where the writ petition has been filed for the enforcement of any of the
Fundamental Rights: or

     ii. where there has been a violation of the principle of natural justice:
or

     iii. where the order or proceedings are wholly without jurisdiction or the
vires of an Act is challenged.

   10.5 Admittedly, under the matrix of the case, as discussed above, even
though the Apex Body of the railway administration, namely, the Railway Board,
on the opinion of the learned Solicitor General of India, constituted a High
Power Committee to go into, enquire and determine the irregularities said to
have been committed by the petitioners, since such enquiry had been, for the
reasons not explained, delegated to the Zonal Level Sub-committee, who
themselves are admittedly parties to the agreements and the Zonal Level Sub-
committee is subordinate to the Railway Board, who directed to hold an enquiry
against the petitioners, the same, in my considered opinion, is liable to be
held as arbitrary and discriminatory, attracting Article 14 of the Constitution
of India.

   10.6 That apart, admittedly, the alleged breach of contract, namely, that the
petitioners had claimed more rate for the HTS wires than the then prevailing
market price, is yet to be adjudicated and determined by the Zonal Level Sub-
committee and even before that, the respondent Railway administration had
covered a huge sum, namely Rs. 1,69,78,883/- from the petitioner in W.P. No.
10814 of 1999 and a sum of Rs. 1,78,09,789/- from the petitioner in W.P. No.
11805 of 1999 respectively, even without giving any reasonable opportunity to
the petitioners before arriving at the quantum of excess amount said to have
been paid to the petitioners. Hence, I find a gross violation of principles of
natural justice not only in the impugned proceedings demanding the recovery but
also in recovering a sum of Rs. 1,69,78,883/- from the petitioner in W.P. No.
10814 of 1999 and a sum of Rs. 1,78,09.7897- from the petitioner in W.P. No.
11805 of 1999 respectively.

   10.7 Concedingly, in identical matters, both the Andhra Pradesh and Karnataka
High Courts quashed the impugned recovery proceedings, wherein the respondents
proposed to recover the amount from the contractors who had also supplied Mono
Block Concrete Sleepers, for the same reasons as in the instant case. The
learned Additional Solicitor General contends that in the matters before the
Andhra Pradesh and Karnataka High Courts, the recovery proceedings were quashed
before the same were given effect to, but in the instant case, the petitioners
have approached the Court only after the recoveries are made and therefore, the
same are not similar and identical. I am unable to agree with such contention,
as the same is quite Illogical and irrational.

   10.8 The respondents have, thus, exercised their powers arbitrarily,
unreasonably, illogically, discriminatorily and in violation of principle of
natural justice and therefore.

   I am obliged to quash the impugned proceedings.

   10.9 Therefore, in exceptional cases, the judicial review is permissible even
under the matrix of non-statutory contracts. Issue No. 2 is answered
accordingly.

   11.1 Issue No. 3 -- Under the context of the case, what relief the
petitioners are entitled for?

   11.2 In Tata Cellular case (supra), it is held that the principles of
judicial review would apply to the exercise of contractual power by the
Government bodies to prevent arbitrariness subject to inherent limitations, in
exercise of that power of judicial review and while exercising such power of
judicial review under Article 226 of the Constitution of India, the financial
interest of the State should be protected.

   11.3 Applying the ratio laid down in Tata Cellular case (referred supra),
that even in the matter of contractual liabilities where, arbitrariness,
violation of Article 14 of the Constitution of India and the principles of
natural justice are complained with reference to the process of decision making,
irrationality, illegality, and procedural propriety, judicial review is
permissible under Article 226 of the Constitution of India, of course, subject
to the financial interest of the State, and taking into consideration the claim
of the petitioners for refund of the amount recovered from the respective
petitioners, with interest @ 18% from the date of withholding till the payment
is made, as well as the financial interest of the State, I am obliged to strike
a balance between the same and pass the following order :

     i. the proceedings even dated 12-7-1997, impugned in the above writ
petitions stand quashed;

     ii. consequently, the respondents are directed to refund a sum of Rs.
1,69,78,883/- to the petitioner in W.P. No. 10814 of 1999 and a sum of Rs.
1,78,09,789/- to the petitioner in W.P. No. 11805 of 1999 respectively, with 6%
Interest thereon, from the date of withholding till the same is refunded, within
a period of four weeks from the date of receipt of copy of this order or a
representation by or on behalf of the petitioners enclosing copy of this order,
whichever is earlier, subject to the condition that the petitioners furnish a
bank guarantee for the entire amount for a period of one year;

     iii. the High Power Committee constituted or to be constituted by the Apex
Body of the Railway administration, namely, the Railway Board, as per the
opinion of the learned Solicitor General of India, shall, after giving a fair
and reasonable opportunity the petitioners, enquire and determine as to the
alleged illegality said to have been committed by the petitioners, treating all
the contractors who had supplied the Mono Block Concrete Sleepers under 'three
quotation system', equally, after examining the relevant books as empowered
under Clause 16 of the agreements dated 30-3-1984 and 30-1-1983, within the said
period of one year.

     iv. the respondents shall take appropriate decision in the matter as to the
quantum of payment said to have been made in excess than the then prevailing
market price;

     v. the bank guarantee directed to be furnished by the petitioners shall be
invoked by the respondent Railway administration only after taking such
appropriate final decision in the matter and till then the petitioners are also
directed to extend the bank guarantee;

     vi. the refund ordered above with interest shall be without prejudice to
the rights of either party, as to the amount recoverable/refundable and the
interest thereon, which shall be determined by the High Power Committee,
referred to above, without any discrimination between the similarly placed
contractors; and

     vii. the report of the Dy. Inspector General of Police (Anti-corruption
cell-CBI), dated 15-3-2001, at any stretch of imagination, cannot be a binding
guideline to the High Power Committee, but, at the best, be a matter for their
consideration to arrive at a decision on the issue.

   These writ petitions are ordered accordingly. No costs.