P L D 1999 Karachi 472 (PLP)

sNAZIM HUSSAIN SIDDIQUI, C J.

The petitioner, a sole proprietary concern which acts as agent in Pakistan for its principal, namely. ,M/s. Akzo Nobel based in Sweden and is engaged in the research. manufacture, sale and distribution of security printing inks i.e., Quick Intaglio Printing Inks, which is used for production/printing of bank/currency notes. bills, cheques, stamps and other security certificates, has impugned the purchase orders dated 3tt-6-1998 and 3-7-1998 for Rs.142,493,390.86 (Rupees one hundred forty-two Millions four hundred ninety-three thousand three hundred ninety and paisas eighty'-six only) and Rs.164,896,000 (Rupees one hundred sixty-four Millions eight hundred ninety-six thousand only) (Annexures "G" and "H") placed by respondent No.2, Pakistan Security Printing Corporation (Pvt.) Limited in favour of respondent No.3 SICPA Ink Pakistan (Pvt.l Limited. The petition is admitted for its disposal on merits. The case of the petitioner, in brief, is that respondent No.2 is a private limited company, which is wholly owned by respondent No.

1. The respondent No.2 is engaged in printing currency notes and other material under the directions, supervision and control of respondent No.l. It is alleged that respondent No.3, which is a company incorporated under the Companies Ordinance, 1984 has been maliciously, unlawfully and secretly awarded the contract for supply of ink by the respondent No.2 in spite of the fact that the quality of ink was neither superior to that of the petitioner nor was its price lower The petitioner has claimed that respondent No.3 procures its supplies from M/s. SICPA holding S.A. of Switzerland. It is alleged that the respondent No.2 vide its letter dated 14-9-1998 invited quotations under Tender No.FP 552 for supply of 119 tons of security ink by sea on F.O.B. basis. The petitioner submitted bidding documents on behalf of its principal in accordance with the direction of the respondent No.2 and the bids were opened by respondent No.2 on I-10-1998 in presence of the bidders including the petitioner. There were only three bidders including the petitioner who participated in the bidding process conducted and concluded by respondent No.2 and the bids submitted by the petitioner was the lowest. According to the petition, the respondent No.3 did not participate in the bidding. The petitioner has claimed that its bid was not only the lowest but was also 22 % lower than the price of locally blended ink being supplied to the respondent No.2. It is also averred in the petition that the petitioner did not receive any purchase order from respondent No.2 and came to know that, even before inviting tenders, the respondent No.2 had already placed the impugned orders to the respondent No-3 extending for a period up to the year 2000. According to the petitioner by doing as above, it was irrefutably demonstrated that there was a collusion between the respondents Nos. 2 and

3. It is also the case of the petitioner that the material ordered to be purchased by the respondent No.2 from the respondent No-3 was neither of superior quality nor had any distinguishable feature, yet, was much higher in price. The petitioner. therefore, has prayed for the following reliefs:- (i) set aside, cancel and quash the purchase orders (Annexures G and H) placed by the respondent No.2 in favour of the respondent No.3; (ii) direct the respondent No.2 to place orders on the basis of quotations in the bid, dated October 1, 1998 submitted by the petitioner on behalf of its principal: _. (iii) pending this petition restrain the respondent No.2' from purchasing and ink or any other material from the respondent No.3 or placing any further orders to it; (iv) grant any other relief which Hon'ble Court deems just and proper in the circumstances of the case. (v) grant costs of the petition." The case of the respondent No.2 is mainly based upon technical grounds. Ii is alleged that neither any right of the petitioner was violated nor any cause of action had accrued to it. The respondent has claimed that on 28-6-1995 a Joint Venture Agreement was executed between the respondents Nos.2 and No.3 and because of it orders were placed to the respondent No.3. A plea has also been taken that the purpose of quotation was only to procure the price structure and to invite quotation from international manufacturers/ suppliers of security ink. It is alleged that invitation of quotation by itself does not confer any right upon the petitioner. Also it is alleged that the remedy. if any, to the petitioner was to sue the respondent No.2 for damages. The case of the respondent No.3 is that said Joint Venture Agreement (J.V.A.) is initially for five years and the same is renewable for additional five years' terms, subject to the agreement of J.V.A. parties. It is alleged that the obligations contained therein are subsisting, valid and binding upon the J.V.A. parties. Also. it is alleged that it was agreed in J.V.A. that respondent No.2 will buy all its requirement of security printing ink from respondent No.3 and that the respondent No.2 could not purchase the same from any other source without breaching J.V.A. This respondent has also claimed that quotations though misguided were merely for ascertaining international prices. It is alleged that the respondent had already issued two purchase orders to respondent No.3 viz. the impugned orders and these orders were for the same quantity and quality of ink for which quotations were invited by the respondent No.2 under the tender dated 14-9-1998. The respondent has claimed that impugned purchase orders were issued in accordance with the contractual obligations of respondent No.2. Although in the petition, the petitioner has not referred to the Special Audit Report on said J.V,A., but a copy of it is available on record and the findings recorded therein are as follows:- "Findings: 1 .JV and allied agreements: (i) SICPA brought in a meagre investment of .Rs.30 million (a part ofwhich was apparently taken back by over-invoicing the second hand and '( new machinery) and became master of production facilities worth two hundred million rupees (approximately) with a secured market for its products (para.2.7). (ii) SICPA succeeded in getting- an opportunity to establish market in Pakistan for its commercial inks at the cost of PSPC, as expenses ' relating to commercial inks were passed to security inks (iii) So far as technology transfer was concerned, SICPA promised to give PSPC nothing new than it was already giving. It; rather, came into a position, wherefrom it could force PSPC to roll back its advancements in developing P.5 intaglio quick set inks. (iv) No explicit formula for revision of prices of the inks was provided in the PPA. Later, SIPL exploited this omission and managed to get the price escalation much more than deserved. (v) PSPC's direct and indirect investment relating to the J.V, viz. Sit-1l- way 232 % more than what SICPA invested in the Companv, yet its management was vested in SICPA's appointee.

2. Operation of J.V.: (i) SIPL earned a profit of Rs.9.'25 million during July-December, 199S, and out of this SICPA's share, being owner of 60% share capital, was Rs.5.835 million, whereas SICPA had subscribed only Rs.5 million to the Company's share capital by December 31, 1995. (ii) All of the expenditure required for operations of SIPL, amounting to Rs.135.558 million during July-December, 1995 was incurred by PSPC on behalf of the Company. Since the Company was unable to clear its liability in lump sum. it was converted into a long term loan to he recovered in instalments over a period of one and a half year. No provision for this investment and specially the manner, in which it was to he met, existed in any of the agreements. (iii) Similarly, PSPC advanced a sum of Rs.20 million to SIPL as a loan for the construction of commercial liquid ink factory. Later, the loan was turned into money in the trust of SIPL for construction of the said building which would be property of PSPC, leased out to SIPL on payment of rent, that was yet to be determined. Both the loan as also the factory building were not the responsibility of PSPC under any provision of the J.V.A. (iv) In the absence of an explicit formula for the revision of prices, Managing Director, SIPL prevailed upon PSPC's management to get 29% increase (which was actually 45% for all inks except Recycled ink on which it was 300%) in the prices of inks w.e.f. January 1, 1996. Consequently, SIPL's profit before tax during 1995-96 was 21 % of the sales and 75% of the equity. This earning was much above the estimate "Break-even" point during the first year of operation in the Company's feasibility study. (v) In the "Business Plan" as also in the "PPA", it was agreed that in no case, the price of security inks was to exceed the price prevailing in the international market. A study carried out by PSPC revealed that SIPL's prices for the security inks were far in excess of the prevailing prices in the international market. PSPC's losses due to overcharging by SIPL during 1995-96 and 1996-97 were Rs.52.803 million and Rs.60.155 million respectively. (vi) SICPA managed through SIPL management to create quality problems in P.5 Intaglio quick set inks (local) during 1996-97 and as such its supply to PSPC during the year was reduced to only 485 Kgs. Consequently, PSPC had to buy S.12 inks which were more than 4 times expensive than the local inks. (vii) Quality of P.5 Intaglio quick set-ink was improved by the ex-employees of PSPC working on deputation with SIPL, and SIPL was left with no choice but to resume the supply of local inks to PSPC during 1997-98. Managing Director, SIPL did not feel at ease with this situation and gave another turn to this campaign against P.5 ink by sending its sample to "De La Rue", an associate company of SIPCA, for its quality testing. De La Rue's Report on quality of P.5 inks was to line with the interests of SICPA and P.5 inks whose quality was. recognized by SICPA in the approved "Business Plan" was discarded for bank notes printing. Again the order for supply of Intaglio quick set inks during 1998-99 did not include even a single Kg. of P.5 inks. (viii)The Managing Director. SIPE managed for the replacement of order for the supply of Intaglio quick set inks during 1997-98, reducing the quality of P.5 inks from 51 tons to 13.955 tons. Thus, PSPC suffered a loss to the extent of Rs.44.2 million at the hands of SICPA though the Managing Director, SIPL by purchasing expensive inks. (ix) A hundred per cent. increase in the price of re-cycled inks was allowed by PSPC right froth the commencement date of JV by allowing profit margin ranging between 113 % to 335 % on different colours. " On the basis of the above findings, the following recommendations were made:- "Recommendations: (1) Severe disciplinary action should be taken against the official of PSPC responsible for bestowing favours on SIPL, beyond the scope of the agreement. Loss caused to PSPC, especially to the case of revision of price of a recycled inks, with effect from the commencement date of J.V. should be recovered from SIPL. (2) Following the increasing trend in the use of P.5 Intaglio quick set inks and re-cycled inks LIP to 1995-96, order for supply of Intaglio inks during 1998-99 should be revised so that 50% of the total requirements are S-12 inks and 50% of that are P.5 and Re-cycled inks. (3) Performance Evaluation of SIPL should be carried out, to have insight of the affairs of the Company. (4) The PSPC ,should rescind the Joint Venture Agreement as early as possible." It is contended on behalf of the petitioner that respondent No.2 awarded contract to the respondent No.3 illegally and it was meant only for private gains of some public functionaries at the cost of the State. Also, it has been argued that J.V.A. was entered into between respondents Nos. 2 and 3 without any public advertisement and, ex facie, was contrary to the national interest. Learned counsel also argued that the report of the Auditor-General had completely exposed the loss suffered by the nation on account of collusion between the respondents Nos. 2 and

3. Learned counsel for petitioner also contended that respondent No.2 is under no legal or moral obligation to continue to suffer huge losses for the- ultimate benefit of respondent No.3. According to him, J.V.A. is illegal, void and clearly contrary to the public policy. He submitted that after the filing of this petition the respondent No.3, in order to defeat the object of this petition, accelerated the supply of ink and supplied approximately 400 tons of the ink to avoid the consequences of any adverse public or judicial response to these collusive transactions. Learned counsel also argued that the plea of the respondent No.2 that quotations were invited to procure the price structure is mala fide as the price structure is procured before and not after awarding contract for ascertaining the best available price. He submitted that contracts were awarded much before the market price was determined through bids. He submitted that once the respondent No.2 had found that market price was much lower than the price at which the respondent No.3 had been awarded the contract there was no justification in continuing J.V.A., which inflicted colossal loss to the interest of the respondent No.2. Learned counsel also contended that the respondents Nos.2 and 3 further colluded to expedite delivery of the consignments ahead of their scheduled time so as to avoid the consequences of the public displeasure over said transaction. Learned counsel further argued that the bids were invited only as an eyewash to conceal the purpose behind the transaction. As against above, learned counsel for respondent No.2 laid great emphasis on the pleas, which have been discussed in the succeeding paras. Mr. Salman Talibuddin, who is appearing for respondent No.3 has adopted the arguments of Mr. Shahani. In support of his contentions learned counsel for petitioners cited (i) Messrs Pacific Multinational (Pvt.) Limited v. Inspector-General of Police, Sindh Police Headquarters and 2 others PLD 1992 Karachi 283: (iii Shaukat Ali v. Secretary, Industries and Mineral Development, Government of Punjab. Lahore and 3 others 1995 MLD 123; (iii) Messrs Gadoon Textile Mills and 814 others v. WAPDA and others 1997 SCMR 641; (iv) Messrs Arif Builders and Developers v. Government of Pakistan PLD 1997 Kar. 627; (v) Messrs Huffaz Seamless Pipe Industries Limited v. Sui Northern Gas Pipeline Limited and others 1998 CLC 1890 and (vi) Qallat Press v. The Secretary, Education Department, Government of Balochistan and 3 others 1998 CLC

833. Ratio of the above cases is that when the State while awarding a contract to a party had acted in an unfair or arbitrary manner or had discriminated against one of the parties who had contested for the award of contract such grievance could be looked into by superior Court in exercise of the power of judicial review under Article 199 of the Constitution, although in ordinary circumstances purely contractual obligation could not be the subject matter of proceedings under said Article. If it is established that Government had accused arbitrarily or in an unfair manner the Court could strike down such action. The Court as a rule, shall strike a balance between competing interest and should be extremely fair to all the parties of the matter. Power vested in Government functionaries is a sacred trust and they should perform their duties as trustees. Where the actions/orders/decisions of State functionaries were illegal, mala fide. contrary to law, the High Court has power, in Constitutional jurisdiction to strike down such orders. Where there is no guideline .for exercise of discretion, in such case also the discretionary power was not unbridled or unfettered. It shill appear to have beer, exercised reasonably. fairly and justly without providing any cause of grievance to 'any person who may be interested in exercise of such discretion. The discretion shall be structured in a way that it must demonstrate the following criteria viz. open plans, open policy statement. open rules, open findings, open reason, open proceedings and fair informal procedure (PLD 1991 SC 14). The Government act, ex facie, shall be nondiscriminatory and provide equal opportunity to all eligible persons. State functionaries are bound to follow the rule of fairness and neutrality, while according contract to the citizen. When transaction was not transparent and on the contrary was done by adopting notorious methods of pick and choose for promoting nepotism and favouritism, it was declared to be without lawful authority and of no legal effect. Government was given option to recover losses incurred by Government exchequer from concerned officer, who was held liable to pay the same personally. First, we take up the issue of maintainability of the petition raised by the respondents. Mr. Shahani strenuously argued that neither any Constitutional right of the petitioner was violated nor any cause of action had accrued to it. He submitted that dispute, if any, is about contractual obligations and for that the remedy is not Constitutional petition. In support of this proposition he placed reliance on the case reported in PLD 1992 Karachi 283 wherein it was observed that there could be no cavil with the proposition that enforcement of purely contractual obligation could not be the subject-matter of proceedings under Article 199 of the Constitution. It is true that above observation is there in said case but the judicial consensus is that when the Government had acted arbitrarily, as in the instant case, the Court can interfere and strike down such action. Mr. Shahani has also argued that the petitioner in the prayer clause has not challenged the Special Audit Report of the Auditor-General of Pakistan, therefore, no relief could be granted which directly or indirectly is based upon said report. It is noted that while exercising jurisdiction under Article 199, the Court has power to look into and examine all material available on record and then arrive its own findings. The report of the Auditor-General is available on record. Its correctness, proprietary and legality has not been challenged before us. Rather it would be more appropriate to say that learned counsel for respondents even did not like to refer it nor commented upon it. In order to do complete justice between the parties, to shorten litigation and to avoid the possibility. of multiplicity of proceedings, we think that relief can be granted to the petitioner which is warranted by law. Mr. Shahani also argued that in Constitutional proceedings disputed fact cannot be investigated. A sort of factual dispute invariably is involved in all Constitutional petitions which come before the Court. The material point to be looked into if the dispute is of substantial nature or it is on the points, which are not material and do not change the complexion of the main point. If the dispute is not of the nature which requires a detailed enquiry a writ would normally be issued. Merely because certain assertions have been made and denied by the other party, this fact by itself does not make it a disputed fact. A party making such allegations has to make out a prima facie case or place on record certain material from which the Court may infer that the dispute involve controversial question of substantial fact. In this particular case, though the respondents knew about said Special Audit Report, even before the institution of this petition, but they did not say anything about it in their respective objections /comments. In fact, the report is based upon irrefutable evidence. We hold that the petition is maintainable. It is evident from the findings of Special Audit Report that undue favour motivated by mala fides, was shown to the respondent No.3. SICPA's subsidiary company SIPL. The petitioner has filed comparative statement of price (Annexure "I") showing an amount of Rs.2,90,22,372.17 paid in excess to respondent No.3. Its authenticity was neither challenged in the objections filed by the respondents nor during the course of the arguments. J.V.A. has the effect of piling up huge financial losses to the respondent No.2 which were caused deliberately. Joint Venture Agreement was entirely in favour of the respondent No.3. The Special Audit Report is comprehensive and is based upon irrefutable evidence/material. It shows that the officials of the respondent No.2 favoured SIPL beyond the scope of the agreement. In view of the above we allow this petition in terms of the recommendations of the Special Audit Report of Auditor-General of Pakistan, First Edition October, 1998 (Special Audit Report Series No.18) and direct the respondents Nos. 1 and 2 to implement said recommendations as far as now possible without further delay. M.B.A./O-6/K Petition accepted.