IN THE HIGH COURT AT CALCUTTA Civil appellate Jurisdiction (In Appeal From An Order Passed In Its Ordinary Original Civil Jurisdiction) Present: The Hon’ble Justice Jyotirmay Bhattacharya And The Hon’ble Justice Shivakant Prasad A.P.O.T No.392 of 2016 with G.A.No.3396 of 2016 Shree Laxmi Iron & Steel Works PVT.LTD.Versus Research Designs & Standard Organisation (RDSO).ORS.For the Appellant/Petitioner : Mr.Jayanta Mitra, Sr.Advocate, Mr.Jishnu Saha, Sr.Advocate, Mr.Debnath Ghosh, Advocate, Ms.Srinanda Bose, Advocate, Mr.Avijit Dey, Advocate.
For the RITES Ltd : Mr.Mr.Mr.Mr.For the RDSO : Mr.L.K.Chatterjee, Advocate, Ms.Aparna Banerjee, Advocate.
For the Konkon Railways : Mr.Dilip Kumar Chatterjee, Advocate, Mr.Dipanjan Datta, Advocate, Mr.Atanu Basu, Advocate, Ms.Rituparna Saha, Advocate, Mr.Jay Manna, Advocate, Ms.Reshma Chatterjee, Advocate.
Jishnu Chowdhury, Advocate, Chayan Gupta, Advocate, A.
Basu, Advocate Dwip Raj Basu, Advocate.
Heard On : 04.8.17, 08.8.17, 09.08.17, 10.8.17, 16.8.17, 18.8.17, 24.8.17 & 14.09.17 Judgement on : 22nd September, 2017 Jyotirmay Bhattacharya, J.This appeal is directed against an order dated 7th November, 2016 passed by the learned Single Judge of this Court in G.A No.2977 of 2012 filed in a suit being C.S.No.360 of 2012.
By the impugned order the plaintiff was restrained from supplying any goods of any description (in addition to metal lineRs.to the Railways till such time that the plaintiff puts in a deposit of Rs.1 crore with the Research Designs and Standard Organization (RDSO) with a direction that such deposit will stand forfeited upon the slightest complaint against the plaintiff’s goods adhering to any specification being justified within a period of 5 years from date.
By way of clarification it was mentioned in the impugned order that no nut or bolt of the plaintiff’s manufacture will reach any railway station and yard or store without the deposit of Rs.1 crore.
In terms of the said order in actual money (not by way of any bank guarantee) being made with the RDSO at its headquarteRs.which money the RDSO will be entitled to forfeit upon the discovery of any goods supplied by the plaintiff to the Railways in the next 5 years not adhering to the contracted specifications.
It was further directed that if there is no default on such account on the part of the plaintiff, the deposit will be refunded after 5 years from the date of such deposit being made to the plaintiff with interest @ of 5% per annum simply, irrespective of the interest that RDSO may earn on such deposit.
All interim orders which were passed earlier in the said injunction proceeding stood vacated and the order of arrest of supply imposed on the plaintiff by the RDSO letter on July 4/9, 2012 stood effective immediately.
The plaintiff was also directed to pay cost of the present interlocutory proceeding assessed at Rs.5 lakhs to RDSO.
The said impugned order was passed in a suit for declaration and injunction filed by the plaintiff/appellant against the defendant/respondent herein.
Following reliefs were claimed by the plaintiff in the said suit.
a) Declaration that the inspection carried out by the defendant no.1 as mentioned in paragraph 21 in relation to the goods supplied by the plaintiff to the defendant no.3 is illegal, null and void and dehors the contract entered into between the plaintiff and the defendant no.3; b) Declaration that the letters No.QA/CT/Metal liner/Confidential/1 and QA/CT/Metal liner/Confidential/2, both dated 4/9th July, 2012, being Annexure “B” hereto, and the letter being No.RITES.WR.JI.(E) SNo.16(2012-13) dated 28th September, 2012, issued by the defendant no.2, be declared illegal being annexure “A” hereto, de hors the contract entered between the plaintiff and the defendants and be adjudged null and void; c) A decree of perpetual injunction restraining the defendant Nos.1 & 2 and each of them, their men, servants, agents and/or assign from taking any steps and/or any further steps and/or giving any effect and/or further effect to or acting in furtherance of the letters No.QA/CT/Metal liner/Confidential/1 and QA/CT/Metal liner/Confidential/2, both dated 4/9th July, 2012, being Annexure “B” hereto, and the letter being No.RITES.
WR.JI.(E)SNo.16(2012-13) dated 28th September, 2012, issued by the defendant no.2 being annexure “A” hereto; d) A decree of perpetual injunction restraining the defendant Nos.1 & 2 and each of them, their men, servants, agents and/or assign from taking any punitive steps against the plaintiff pursuant to letters being Nos.QA/CT/Metal liner/Confidential/1 and QA/CT/Metal liner/Confidential/2, being Annexure “B” hereto; e) A decree of perpetual injunction restraining the defendant Nos.1& 2 and each of them, their men, servants, agents and/or assigns from taking any steps for joint inspection as notified in the letter dated 28th September, 2012 or otherwise in any manner whatsoever; f) A decree of perpetual injunction restraining the defendant Nos.1 & 2 and each of them, their men, servants, agents and/or assigns from interfering and/or the plaintiff’s right to manufacture and/or offer inspection of the Metal Liners bearing drawing No.RT-3738; g) Delivery up and cancellation of the letters No.QA/CT/Metal liner/Confidential/1 and QA/CT/ Metal liner/Confidential/2, both dated 4/9th July, 2012, being Annexure “B” hereto, and the letter being No.RITES.WR.JI.(E)SNo.16 (2012-13) dated 28th September, 2012, issued by the defendant no.3; h) An enquiry into the loss and damages suffered by the plaintiff for the wrongful and illegal acts on the part of the defendant Nos.1 and 2 in stopping the plaintiff’s production and inspection of Metal Liners and a decree for such may be made in favour of the plaintiff upon such enquiry being made; i) Injunction; j) Receiver; k) Attachment; l) Costs; m) Such or further order.
After filing the said suit the plaintiff/appellant filed an interlocutory application praying for the following interim reliefs.
(a) The respondent Nos.1 & 2 and each of them, their men, servants, agents and/or assigns be restrained from taking any steps and/or any further steps and/or giving any effect and/or further effect to or acting in furtherance of the letters No.QA/CT/Metal liner/Confidential/1 and QA/CT/Metal liner/Confidential/2, both dated 4/9th July, 2012, being Annexure “G” hereto, and the letter being No.RITES.WR.JI(E)S.
No.16(2012-2013).dated 28th September 2012 issued by the respondent no.2 being annexure “F” hereto; (b) The respondent Nos.1 & 2 and each of them, their men, servants, agents and/or assigns be restrained from taking any punitive steps against the petitioner pursuant liner/Confidential/1 Annexure “G” hereto; and to letters QA/CT/Metal being Nos.QA/CT/Metal liner/Confidential/2, being (c) The respondent Nos.1 & 2 and each of them, their men, servants, agents and/or assigns be restrained from interfering and/or the plaintiff’s right to manufacture and/or offer inspection of the Metal Liners bearing drawing No.RT-3738; in relation to other contracts with zonal railways in any manner whatsoever.
(d) The respondent Nos.1 & 2 and each of them, their men, servants, agents and/or assigns be restrained from taking any steps for joint inspection as notified in the letter dated 28th September, 2012 or otherwise in any manner whatsoever; (e) Stay of operation of the letters dated No.QA/CT/Metal liner/Confidential/1 and QA/CT/Metal liner/Confidential/2, both dated 4/9th July, 2012, being Annexure “G” hereto, and the letter being No.RITES.WR.JI(E)S.
No.16(2012-2013).dated 28th September 2012 issued by the respondent no.2 being annexure “F” hereto; (f) Ad-interim order in terms of above; (g) Pass such further order or orders and/or direction or directions be given as this Hon’ble Court may deed fit and proper.
Though initially certain interim relief was granted to the plaintiff/appellant by the learned Trial Judge for a limited period and the same was subsequently extended from time to time but ultimately the plaintiff’s said interlocutory application was disposed of by the impugned order in the manner as mentioned above.
The cause of action of the said suit arose with the issuance of a letter dated 4/9th July, 2012 and the letter dated 28th September 2012 by Director/QAC/Mod of RDSO whereby as per clause 20 of general guidelines for vendor development, QC-G-7.1-1 Rev.2, the plaintiff company was advised to stop all further production of Metal Liner to drg.
No.RT-3738 at its firm as precautionary measures to avoid production and supply of potentially inferior product with immediate effect.
The said letter was issued as while testing the fiRs.set of samples manufactured by the plaintiff company by RDSO, it was found that the fiRs.set of samples of the plaintiff company found not conforming to the norms of IRS specification for metal liner.
The plaintiff was intimated that no further inspection will be carried out and the final decision will be taken based on outcome of the results of second set of sample which was to be opened and tested as per the provisions of clause 20 of general guidelines for vendor development, QC-G-7.1-1Rev.2 which remain effective from 5th September 2011.
It is alleged by the plaintiff that the plaintiff is registered as Part-I listed vendor with the RDSO and by virtue of its registration as such with the RDSO, the plaintiff company is entitled to supply various safety items and also other than safety items manufactured by it as per the drawing or specification of the RDSO, to the Railway Authorities as per contract.
As per the contract entered into between West Central Railways and plaintiff company, the plaintiff company manufactured huge quantity of metal liners as per the drawing and/or specification of RDSO bearing drawing no.RT-3738 metal liners and supplied its products to the consignee namely the Railway authorities after its products were tested and certified to be in conformity with RDSO specification and design by Rites Limited a Government of India enterprise.
As per the contract, the plaintiff was required to supply its product to the Railway authorities which accepted the delivery of such supplies only after the plaintiff’s products are certified to be in conformity with specification of RDSO.
Such certification was the design and/or made by Rites Limited after it being satisfied about its product conforming to the standard specification and/or design of RDSO.
Such Satisfaction was recorded by the Rites only after holding several tests on sample checking such as dimension test, hardness and surface test elongation and bent test etc., by Rites Limited at the factory i.e.the place of manufacture of the plaintiff’s company.
Such tests were conducted by the Rites Limited with reference to the gauge approved by the RDSO which was retained with the plaintiff’s company as per the general guidelines for vendORS.On the basis of such test report issued by the Rites officials, the Konkon Railway authorities accepted the supplies of metal liner made by the plaintiff company sometime in the year 2011-12 and such supplies were not only used by the Railway authorities but also payment was made by the railway authorities to the plaintiff’s company without raising any dispute and/or complaint with regard to its product not being manufactured in conformity with the RDSO specification.
The Railway authorities which was the ultimate user of those supplies neither made any complaint about the defect in its product supplied to it by the plaintiff company nor ever demanded replacement of such supplies by its products manufactured in conformity of the RDSO specification nor the Railway authorities took any step for refund of the price paid to the plaintiff for any breach of contract made by the plaintiff nor any step was taken by the Railway authorities for cancellation of the contract on account of any breach on the part of the plaintiff company.
In this factual matrix, presently we are not required to consider the rights and obligations of the plaintiff company vis-à-vis the rights and obligations of the railways authority.
In the present case, we are required to consider the rights and obligation of the plaintiff vis-à-vis the rights and obligations of the RDSO with reference to the guidelines of the vendor development as the impugned action of the RDSO is based on the guidelines of the vendor development.
Undoubtedly the RDSO has the authority to test the supplies of the plaintiff’s product not only in couRs.of its manufacture but also after the products are supplied and used by the Railway authorities during the warranty period.
As per the vendor’s guidelines the RDSO is the authority which is empowered not only to downgrade the vendor from List-I to list II but also may delist any company if the RDSO is satisfied on test of second set of samples do not conform the specification and/or design approved by RDSO.
The RDSO is also authorized to upgrade such downgrade company after being satisfied that the conditions for upgradation have been fulfilled by the downgraded company within the stipulated period.
It is provided in 20.1.6 of the vendor’s guidelines that if the fiRs.set of samples fails to meet the acceptance criteria as decided by RDSO, the second set of samples will be tested exactly in the same way as the fiRs.set was tested with a difference to witnessing of the opening of the sample in the presence of the representative of the vendor firm.
20.1.7 of the said guideline provides that in case the fiRs.sample passes the criteria laid down, no further communication will be required with any party.
Normally correspondence may be made to inform if there is any non-conformity of specification so that, corrective action is taken by the firm.
The consequences of failure in the test of fiRs.set of sample is provided in 20.2.1 which runs as follows:“20.2.1:- Failure of fiRs.set: (i) The firm will be advised by the RDSO to stop all further production.
No inspection will be carried out till the testing of second set is done.
(ii) The firm will also be informed to depute their authorized representative to witness the opening of the second set of samples on the appointed date and place.
(iii) The second set of samples will be opened and tested on the appointed date or later as the convenience of RDSO.
(iv) Further couRs.of action will be decided on the outcome of the results of the second set.” Failure on test of second set of samples is provided in 20.2.3 which runs as follows: “20.2.3 Failure of the second set:If the second set of samples also fails the specified criteria, the entire lot will be considered as failed and action shall be taken as per 20.2.4.” Following actions may be taken by RDSO as per 20.2.4 “20.2.4 In the event of failure of both sets of samples, the corrective action will be as detailed below.
The firm shall be given reasonable time to submit representation if any.
After scrutiny of test result and firm’s representation if any following action shall be taken18.104.22.168 Part I FirMs.(i) Depending upon gravity of test results, one of the following action will be taken: (a) The firm shall be downgraded to Part-II.
The production and inspection of such firms can be resorted only after satisfactory quality audit.
The firm can return to Part-I list only after completion of one year period from date of delisting provided all other conditions are fulfilled.
(b) Firm shall be temporarily delisted for 6 months from date of stoppage of production and Inspection or three months from the date of issue of ordeRs.whichever is later.
After completion of period of delisting, firm shall be restored to Pt.
II status only after satisfactory quality audit.
The firm can return to Part-I list only after completion of one year period in Part-II provided all other conditions are fulfilled.
The criteria for defining gravity of test result is available with QA Civil Directorate of RDSO.
(ii) A special quality audit of the firm shall be arranged either by deputing nominated official of RDSO or based on scrutiny of test results and production/quality control records.
The list of non-conformities or deficiencies shall be given to the firm on the basis of special quality audit.
The firm will submit corrective action taken and the internal Test Report (ITR) of their product after rectifying the non-conformities and deficiencis, as pointed out in the special quality audit.
On submission of compliance report and ITR, the firm’s premises shall be visited again by a Dy.
Director/Director of RDSO to confirm whether the desired corrective action has been taken and if everything is found satisfactory, the production and inspection shall be allowed to resume.
(iii) If the corrective action taken and the internal Test Report (ITR).as submitted by the firm, are not found satisfactory, the firm shall not be given any more chance, instead, the firm shall be de-listed for one year and status will be restored to Pt.II after one year of de-listing, if the ITR is found satisfactory and all other criteria are fulfilled.
It will not however, be taken as a fresh case.
22.214.171.124 Part-II firMs.If the second sample falls, the firm shall be temporarily de-listed for a period of one year from date of stoppage of production and inspection or six months from date of issue of ordeRs.whichever is later.
Special quality audit will be carried out as detailed in 126.96.36.199 ii) above, if the firm is able to rectify deficiencies as pointed out in the technical audit and its ITR is found satisfactory, it shall be restored to Pt.
II List after completion of period of delisting.
If the corrective action taken and the internal Test Report (ITR) submitted by the firm after one year are not found satisfactory, the firm shall not be given any more chance and it shall be delisted for one year, I.e., one year temporary de-listing.
And once de-listed it can return to Pt.
II list only after completion of one year of delisting, provided it has taken corrective action ITR is found satisfactory.
It will, however, not be treated as a fresh case.
188.8.131.52 Once downgraded to Pt.
II, the firm can return to Pt.
I list only after completion of one year period, in Part-II provided all other conditions are fulfilled.
184.108.40.206 Appellate Authority: The appeal against decision of the directorate can be preferred to ADG/RDSO within 30 days of communication of order.
ADG/RDSO may review the case based on records in light of points of appeal.
220.127.116.11 Restoration of de-listed firMs.The firms temporarily delisted due to failure of samples as tested under consignee end policy can be processed by RDSO for restoration as Part-II Vendors on Vendor’s request after completion of minimum stipulated period of and two stage satisfactory quality audit as required under the policy.
Regarding taking penal action, RDSO will intimate concerned railway for taking action as per Penalty Clause in Para 20.2.6 The action regarding restoration of the firm as Part-II Vendor will be independent of the penal action to be taken by the Railways.
However up gradation of such firms from Part-II to Part-I will be considered only after completion of penal action (Ref Para 20.2.6) by Railways in terms of Railway Board’s policy Guidelines.
18.104.22.168 Special Quality Audit of the firm: In case of failure of both the sets, a special quality audit will be conducted by the RDSO at the level of Dy.
Special Quality Audit of the de-listed firm shall normally be carried out within a period of 2 months after submission of corrective action taken and initial Test Report (ITR) of their product by the firm after rectifying all the deficiencies and non-conformities.
The Executive Director has the discretion of allowing AIE/ARO to carry out the assigned work.” Presently, we are not concerned with the consequence of the failure at the test of second set of samples.
As such test is yet to be done or even if it is done, no penal action having been taken by RDSO for such an eventuality till date.
We need not consider the legality of any anticipated action that may be proposed by the RDSO against the plaintiff herei