Facts of the Case

BSTDC invited tenders for operation of Hotel Vishnu Vihar, Gaya. The petitioner emerged as the successful bidder and was issued a Letter of Award in April 2018.

Although possession of the hotel was handed over in June 2018, the petitioner repeatedly defaulted in furnishing security deposits, bank guarantees and payment of annual licence fees. Several reminders and opportunities were granted by BSTDC.

The formal lease agreement was eventually executed on 27.08.2019. Thereafter, the petitioner continued to default in payment of licence fees despite repeated notices.

During the COVID-19 pandemic, the petitioner requested waiver/reduction of rent and claimed that the lease period should commence from the date of execution of the agreement instead of the allotment letter.

BSTDC rejected these requests, cancelled the lease agreement on 01.04.2022, blacklisted the petitioner for five years and subsequently floated a fresh tender through which MKS Enterprises became the successful bidder.

The petitioner challenged the cancellation order, blacklisting, refusal of COVID rent waiver, commencement of lease period and subsequent allotment before the Patna High Court.

 

Issues Involved

  1. Whether the writ petition was maintainable despite the arbitration clause contained in the agreement.
  2. Whether cancellation of the lease agreement and blacklisting were legally sustainable.
  3. Whether the petitioner was entitled to restoration of possession.
  4. Whether the lease period commenced from the date of execution of the agreement or from the allotment letter.
  5. Whether COVID-19 justified waiver or reduction of licence fee.
  6. Whether the petitioner was entitled to a gestation period.
  7. Whether rights had accrued in favour of the subsequent successful bidder.

 

Petitioner's Arguments

The petitioner contended that:

  • Cancellation and blacklisting were arbitrary and violative of Articles 14 and 19(1)(g).
  • COVID-19 severely affected hotel operations and therefore rent waiver or substantial concession ought to have been granted.
  • The lease period should begin from execution of the agreement rather than the date of allotment.
  • Gestation period ought to have been granted.
  • Principles of natural justice were violated.
  • Outstanding dues were wrongly calculated.
  • The petitioner was willing to deposit the outstanding amount and also match the higher licence fee quoted by the subsequent successful bidder.
  • Since the agreement contained an arbitration clause, disputes should have been referred to arbitration.

 

Respondents' Arguments

BSTDC submitted that:

  • The petitioner had continuously defaulted in payment from the very beginning.
  • Numerous reminders and opportunities had already been granted.
  • Even the cheque issued by the petitioner had been dishonoured.
  • Interest on delayed payment had already been waived through a uniform policy during COVID; however, principal dues remained payable.
  • The agreement clearly provided that the lease period commenced from the allotment letter.
  • Gestation period was never claimed at the relevant time and the hotel was already operational.
  • Cancellation and blacklisting strictly followed contractual provisions.
  • Fresh tender had already been completed and valuable rights had accrued in favour of the new allottee.

The subsequent successful bidder also opposed restoration of the petitioner's lease, contending that it had lawfully acquired rights after completion of the fresh tender process.

 

Court Order / Findings

The Patna High Court dismissed the writ petition and upheld the actions of BSTDC.

The Court held that:

  • Mere existence of an arbitration clause does not automatically bar a writ petition; however, on merits the petitioner failed to establish arbitrariness.
  • Persistent payment defaults by the petitioner justified cancellation and blacklisting.
  • BSTDC had granted repeated opportunities before terminating the contract.
  • The Corporation's COVID policy granting waiver of interest but not waiver of principal licence fee constituted a valid policy decision and could not be interfered with merely because the petitioner sought further concessions.
  • Courts should not substitute their own views for commercial policy decisions taken by public corporations.
  • The lease period clearly commenced from the allotment letter and not from execution of the agreement.
  • The claim for gestation period was belated and contrary to the contractual terms since the hotel was already operational.
  • No violation of principles of natural justice was established.
  • Rights had already accrued in favour of the subsequent successful bidder through the second tender process.
  • No ground existed to restore possession of the hotel to the petitioner.

 

Important Clarifications

  • An arbitration clause does not automatically prevent exercise of writ jurisdiction; however, the High Court will interfere only where recognized exceptions exist.
  • Commercial policy decisions of Government corporations are entitled to judicial deference unless shown to be arbitrary or illegal.
  • COVID-19 does not automatically entitle a contracting party to waiver of contractual licence fees.
  • Interest waiver under a Government policy does not imply waiver of principal contractual dues.
  • Gestation period benefits must be claimed in accordance with contractual terms and within the prescribed time.
  • Rights acquired by a successful bidder through a subsequent tender process deserve protection where the earlier allottee has committed repeated contractual defaults.

Relevant Sections / Provisions Involved

  • Articles 14, 19(1)(g) and 226 of the Constitution of India
  • Arbitration and Conciliation Act, 1996
  • Arbitration Clause 54 of the Lease Agreement
  • Clause 53 (Interpretation of Agreement)
  • Clauses relating to cancellation, blacklisting and payment obligations under the Lease Agreement
  • Relevant clauses of the Notice Inviting Tender (NIT) relating to:
    • Lease period
    • Gestation period
    • Security Deposit
    • Cancellation
    • Arbitration
    • Blacklisting


Link to Download the Order https://www.mytaxexpert.co.in/uploads/1782980441_63compressed.pdf 

 

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