{"id":309995,"date":"2023-12-23T13:00:52","date_gmt":"2023-12-23T07:30:52","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=309995"},"modified":"2023-12-29T11:20:21","modified_gmt":"2023-12-29T05:50:21","slug":"calcutta-high-court-directs-bhel-to-comply-with-government-directive-in-government-contracts-scc-blog","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/12\/23\/calcutta-high-court-directs-bhel-to-comply-with-government-directive-in-government-contracts-scc-blog\/","title":{"rendered":"Calcutta High Court directs BHEL to comply with Government Directive for reduction of Performance Guarantees in government contracts"},"content":{"rendered":"
\n

Calcutta High Court:<\/span> In a writ petition seeking mandamus to set aside BHEL’s decision and to direct compliance with the O.M. dated 12-11-2020 by the Government of India directing reduction in Performance Bank guarantee from 5-10% to 3% of the project value in existing contracts due to the economic impact of the COVID-19 pandemic, a single-judge bench comprising of Hiranmay Bhattacharyya,* J.<\/span>, set aside the rejection of the petitioner’s request and directed BHEL to comply with the O.M. dated 12-11-2020 regarding the reduction of contract performance guarantees.<\/p>\n

Factual Matrix<\/p>\n

In the instant matter, the writ petitioner, engaged in the business of construction of ventilation systems and related works was awarded nine tenders by BHEL for ventilation works in various regions. Pursuant to agreements with BHEL, the petitioner had to provide contract performance securities at 10% of contract values.<\/p>\n

The Government of India issued an O.M. on 12-11-2020, instructing Central Public Sector Enterprises (CPSEs) to reduce performance bank guarantee amounts from 5-10% to 3% of project values in existing contracts due to the economic impact of the COVID-19 pandemic. The petitioner requested to implement the O.M. by reducing existing bank guarantees but the same was rejected by BHEL on 18-06-2021.<\/p>\n

The petitioner filed a petition seeking a writ of mandamus to set aside a decision made by BHEL, as communicated in a letter dated 18-06-2021. The petitioner urged the Court to direct BHEL to act in accordance with an Office Memorandum (O.M.) dated 12-11-2020 issued by the Government of India.<\/p>\n

Moot Point<\/p>\n

    \n
  1. \n

    Whether BHEL, as a government company, is bound by the O.M. dated 12-11-2020?<\/p>\n<\/li>\n

  2. \n

    Whether BHEL’s rejection of the petitioner’s request is valid?<\/p>\n<\/li>\n

  3. \n

    Whether the circular dated 06-03-2021, imposing conditions on the reduction of contract performance security, is lawful?<\/p>\n<\/li>\n<\/ol>\n

    Parties’ Contentions<\/p>\n

    The petitioner contended that BHEL, being a government company, must comply with the O.M. dated 12-11-2020. The petitioner argued that BHEL has implemented the O.M. in other instances. On the other hand, respondent 1-BHEL contended that it is not bound by the O.M. as it falls under the Ministry of Heavy Industries, and the circular issued on 06-03=2021 is valid. BHEL argued that the O.M. is not binding and that the terms of contracts cannot be amended by executive instructions.<\/p>\n

    Court’s Assessment<\/p>\n

    The Court cited the definition of “State” under Article 12<\/a> of the Constitution of India<\/a> and distinguished government companies from the government itself. The Court relied on precedents to emphasised that government companies can be considered “other authorities” and, therefore, “State” under Article 12<\/a> of the Constitution of India<\/a>. The Court established that BHEL is a government company falling under the Ministry of Heavy Industries and is bound by the O.M. dated 12.11.2020.<\/p>\n

    The Court distinguished cases cited by BHEL, asserting that the circular imposing conditions contradicts the O.M. and must be set aside. The Court rejected the argument that the circular dated 06-03-2021 is valid and interferes with BHEL’s decision, directing compliance with the O.M. The Court upheld the binding nature of the O.M. dated 12-11-2020 on BHEL and rejected arguments against its applicability to existing contracts. The Court ordered BHEL to accept bank guarantees at the reduced rate of 3% of the project value and return existing bank guarantees to the petitioner.<\/p>\n

    Court’s Decision<\/p>\n

    The Court allowed the writ petition, set aside the condition imposed by the circular dated 06-03-2021 and the rejection of the petitioner’s request is quashed. The Court directed BHEL to comply with the O.M. dated 12-11-2020 by accepting reduced bank guarantees. No costs are awarded.<\/p>\n

    [C. Doctor & Co. (P) Ltd.<\/span> v. BHEL<\/span>, 2023 SCC OnLine Cal 5468<\/a>, order dated 21-12-2023<\/span>]<\/p>\n

    *Judgment by Justice Hiranmay Bhattacharyya<\/span><\/strong><\/p>\n

    \n\n

    Advocates who appeared in this case :<\/p>\n

    Mr. Jishnu Chowdhury, Mr. Aritra Basu, Ms. Sonia Sharma, Counsel for the Petitioner<\/p>\n

    Mr. Rohit Das, Ms. Kishwar Rahman, Ms. Sristi Roy, Counsel for the Respondent 1<\/p>\n

    Buy Constitution of India  HERE<\/a><\/h3>\n

    \"Constitution<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    “BHEL falls within the expression “other authority” and, therefore, “State” within the meaning of Article 12 of the Constitution of India. This writ petition is thus maintainable against BHEL.”<\/p>\n","protected":false},"author":67514,"featured_media":290502,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[39198,2689,30025,63797,59104,63798],"class_list":["post-309995","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-bhel","tag-Calcutta_High_Court","tag-government-contracts","tag-government-directive","tag-justice-hiranmay-bhattacharyya","tag-performance-guarantees"],"yoast_head":"\nCalcutta High Court directs BHEL to comply with Government Directive in government contracts | SCC Blog<\/title>\n<meta name=\"description\" content=\"Calcutta High Court directed BHEL to comply with Government Directive for reduction of Performance Guarantees in government contracts.\" \/>\n<meta name=\"robots\" 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