Facts of the Case

This is LPA 568/2023 before the Delhi High Court, an intra-court appeal by Basant Goel, proprietor of M/s Goel Medicos, against a Single Judge's judgment dated 11 July 2023. This case concerns termination of a government supply contract for corrupt/fraudulent practice, not GST. M/s Goel Medicos, empanelled as an Authorised Local Chemist under the Central Government Health Scheme (CGHS), was gifted by its earlier proprietor, Usha Goel, to her son, the appellant, by a Gift Deed dated 31.07.2020. Despite this, Usha Goel executed a Power of Attorney on 18.08.2020 in favour of an employee, Akash Jain, who then signed the CGHS supply agreement dated 19.08.2020 for the Sonipat Wellness Centre in her name. When the change in proprietorship surfaced during scrutiny of later 2023 tenders, CGHS issued show-cause notices, found the omission to amount to misrepresentation/fraudulent practice, and on 31.05.2023 terminated the Sonipat contract, forfeited the Performance Bank Security (PBS) of Rs.12,10,000/-, and debarred the appellant from all CGHS tenders for two years. The Single Judge had earlier set aside only the debarment portion but upheld the termination and forfeiture, leading to this appeal.

Issues Involved

  1. Whether the termination of the CGHS supply contract and forfeiture of the Performance Bank Security were justified given the appellant's claim of an inadvertent, bona fide clerical error.
  2. Whether the penalty of termination and forfeiture was disproportionate to the nature of the lapse, invoking the doctrine of proportionality.
  3. Whether the Respondents' knowledge of the amended GST number and TDS deductions under it amounted to acknowledgment and waiver of the proprietorship change.

Petitioner's Arguments

  • The execution of the PoA by the former proprietor and the Agreement by the authorised signatory were inadvertent oversights without any malice, given the close proximity of dates.
  • CGHS officials were aware of the change in ownership since all invoices from 16.09.2020 onward bore the amended GST number and Drug Licence details, and 2% GST TDS was deducted and deposited against the amended GST number — showing CGHS's acknowledgment and satisfaction with the arrangement.
  • Any irregularity in signing authority stood ratified by the appellant's own subsequent conduct, and the tender document's definition of 'fraudulent practice' did not apply to this inadvertent error.
  • Termination and forfeiture were disproportionate and mechanical, given there was no complaint about the quality of medicines supplied.

Respondent's Arguments

  • (As recorded in the Single Judge's findings, relied upon by the Division Bench) The tender documents were signed by a person authorised by someone (Usha Goel) who had already ceased to be the sole proprietor, and therefore should not have been considered by CGHS.
  • Suppression of the change in proprietorship amounted to misrepresentation of facts entitling termination of the contract and forfeiture of the security under the applicable tender clauses.

Court Order / Findings

  • The Division Bench agreed that the Appellant had misrepresented the facts to CGHS by allowing a continuing impression of association with the former proprietor, which impacted the tender process and raised questions about reliability, irrespective of the absence of any deceptive intent.
  • It held that a duty of honest performance and accurate disclosure applies to bidders, and this misrepresentation made the transaction voidable at CGHS's instance, justifying termination and forfeiture under the relevant tender clauses.
  • On proportionality, the Court held the penalty of termination and forfeiture — though appearing harsh — was proportionate to the seriousness of the misrepresentation, and government-contract decisions involve public-interest considerations that a court cannot second-guess.
  • The appeal was dismissed, upholding the Single Judge's decision on termination and forfeiture of the PBS (the earlier setting-aside of the two-year debarment was not disturbed, as that portion had already attained finality in the Appellant's favour and was not under challenge by the Respondents).

Important Clarification

This is a public-procurement and contract-law ruling, not a GST ruling. The amended GST registration number and the GST TDS deducted on payments were cited by the appellant only to show that the department was aware of the change in proprietorship — the Court did not decide any GST compliance question, and its ruling turned entirely on tender-document interpretation and the doctrine of proportionality in contract termination.

Sections Involved

  • Indian Contract Act, 1872 — Sections 186 and 197 (ratification of agent's authority)
  • Tender Document clauses (Section I Clause 15(ii)(b), Section I Clause 16, Section II Clause 10) governing fraudulent practice and forfeiture of security

Decision – In Favour of

In favour of the Respondents (Union of India / CGHS) — the appeal was dismissed and the termination of contract along with forfeiture of the Rs.12,10,000/- Performance Bank Security was upheld.

Case Details

Court: High Court of Delhi at New Delhi
Case No.: LPA 568/2023 & CM APPLs. 37686-37687/2023
Coram: Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula
Date: 11 August 2023 (Reserved 26 July 2023)

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