Food Corporation Of India vs Ankush Aggarwal
2022 Latest Caselaw 2297 Jhar

     IN THE HIGH COURT OF JHARKHAND AT RANCHI
               (Letters Patent Appellate Jurisdiction)

                            L.P.A. No. 504 of 2018

Food Corporation of India, a statutory Corporation constituted by and under
the Food Corporations Act, 1964, through its General Manager (Region),
Amit Bhushan, son of Shri U.K. Asthana, working at Regional Office,
Block-A, 4th Floor, New Collectorate Building, Kutchery Road, PS-Kotwali,
PO & District-Ranchi                                         ......Appellant
                                      Versus
1. Ankush Aggarwal, son of late Arun Kumar Aggarwal, resident of
Ujiarpur, PO&PS-Ujiarpur, District-Samastipur, Bihar
                                                     ... Respondent

2. Food Corporation of India through its Chairman-cum-Managing Director,
having its office at 16/20, Barakhambha Lane, PO&PS-Barakhambha Road,
District-New Delhi
3. General Manager (Jharkhand), Ranchi, Food Corporation of India, having
its office at Block-A, 4th Floor, New Collectorate Building, Kutchery Road,
PS-Kotwali, PO & District-Ranchi
4. Assistant General Manager (Contract), Ranchi, Food Corporation of
India, having office at Block-A, 4th Floor, New Collectorate Building,
Kutchery Road, PS-Kotwali, PO & District-Ranchi
                                                  ... Proforma Respondents
                                 ---------------

                        PRESENT
         HON'BLE MR. JUSTICE SHREE CHANDRASHEKHAR
           HON'BLE MR. JUSTICE RATNAKER BHENGRA

For the Appellant        : Mr. Nipun Bakshi, Advocate
For the Respondents      : Mrs. J. Mazumdar, Advocate
                                ---------------

                                ORDER

28th June 2022

Per Shree Chandrashekhar, J.

By an order dated 13th June 2018, W.P(C) No.2254 of 2018 challenging the order of termination of contract and debarment for five years was allowed.

2. Food Corporation of India (in short, FCI) has questioned legality of the findings recorded by the writ Court that (a) clause 7(i)(a) of NIT is not mandatory and (b) the order of debarment was bad in law inasmuch as no notice/opportunity of hearing was afforded to the writ petitioner who is respondent before us.

3. At the outset, we may indicate that pursuant to the writ Court's order dated 13th June 2018 passed in W.P(C) No.2254 of 2018 the respondent was permitted to carry on the work under contract for 24 months and payments have been made to him in lieu thereof.

4. A tender notice was issued on 11th January 2018 for appointment of HTC Contractor for handling and transportation work between RH Madhupur to PEG Giridih - both sides - and for handling work at RH Madhupur and at inside PEG Giridih. The respondent was declared successful bidder and Letter of Acceptance dated 28th February 2018 was issued to him and he was requested to arrange payment of security deposit of Rs.61,60,000/-. The case pleaded by FCI is that as per condition under clause 7(i)(a) of NIT the successful bidder is required to furnish atleast 5% of the security deposit within fifteen working days from 28 th February 2018. There is no dispute that by 22nd March 2018 which was the last date for depositing security deposit the respondent could not furnish a deposit equivalent to 5% of the total value of the contract as mandated under clause 7(i)(a) of NIT. The stand taken by the respondent was that he had deposited Rs.61,60,000/- at Samastipur Branch of Union Bank of India for transfer of the said amount through RTGS to FCI, however, due to some technical problem wired transaction was unsuccessful. The respondent further pleaded that Union Bank of India sent a communication which was received by him on 21st March 2018 informing him about failure of the transaction and, accordingly, he made arrangements for transfer of security deposit on 23rd March 2018 which was the next working day - 22nd March 2018 being a public holiday. However, on 26 th April 2018 the order of termination of the contract and debarment of the respondent for five years was communicated to him.

5. The writ Court held that clause 7(i)(a) of NIT was not mandatory and the order of termination and blacklisting was passed by FCI with predetermined mind.

6. The writ Court has held as under:

"32. The aforesaid conditions of the tender provide that the security deposit should be furnished within 15 days of issuance of the Letter of Acceptance or within the extended period. In case the successful bidder fails to comply with the said requirement, it will

be a sufficient ground for the respondent-FCI to cancel the awarded work. Apart from the termination of contract, additional right is reserved with the respondent-FCI to blacklist/debar the bidder in future tenders for a period of five years.

33. Since the condition of the contract itself provides for furnishing security deposit within fifteen days of issuance of the Letter of Acceptance or within extended period, in my considered view, the same referred herein above is not a mandatory condition and as such, the respondent-FCI should not have terminated the contract awarded to the petitioner for delay of merely one day, in exercise of its discretionary power. Moreover, admittedly, even after the lapse of the said period of 15 days, the respondents enquired from the bank about the true fact with regard to the explanation made by the petitioner for non-furnishing the security deposit and thus, it reflects that the respondents had not treated the said time frame for furnishing the security deposit as a mandatory condition."

7. Clause 7 of NIT is extracted below:

"7. Security Deposit

(i) The successful Tenderer shall furnish, within fifteen working days of acceptance of his tender, a Security Deposit for the due performance of his obligations under the contract. The Security Deposit shall consist of;

(a) A sum equivalent to 5% of the value of the Contract through Electronic Clearing System (ECS)/any other electronic means in favour of the General Manager (Ranchi), Food Corporation of India. The contractor at his option may deposit 50 (fifty) percent of this amount within fifteen working days of acceptance of his tender while the balance 50 (fifty) percent may be paid by the contractor by deductions at the rate of 10 (ten) percent from the admitted bills. The Security Deposit shall not earn any interest.

(b) Another sum equivalent to 10% of the value of contract, in the form of an irrevocable and unconditional Bank Guarantee issued by State Bank of India or any of its Associate Banks or by any Public Sector Bank in the format prescribed in Appendix-IV which shall be enforceable till six months after the expiry of the contract period.

(c) If applicable, an additional sum equivalent to 10% of the value of the contract (in addition to a & b above), in terms of an undertaking provided by the tenderer for relaxation of eligibility conditions, in the form of an irrevocable and unconditional Bank Guarantee issued by SBI Bank or its Associate Banks or by other Public Sector Banks in the format prescribed in Appendix-V which shall be enforceable till six months after the expiry of the contract period.

(ii) In case of failure of tenderer to deposit the Bank Guarantee as stipulated in clause 7(i)(b) & (c) within 15 working days of acceptance of his tender, further extension of 15 working days can be given subject to levy of penalty @ 1% of the whole amount of the Security Deposit and another 15 working days with levy of penalty @ 2% on the whole amount of the Security Deposit by GM(R).

(iii) The Security Deposit furnished by the Tenderer will be subject to the terms and conditions given in the Tender and the Corporation will not be liable for payment of any interest on the Security Deposit.

(iv) In the event of the Tenderer's failure, after the communication

of acceptance of the tender by the Corporation, to furnish the requisite Security Deposit by the due date including extension period, his Contract shall be summarily terminated besides forfeiture of the Earnest Money and the Corporation shall proceed for appointment of another contractor. Any losses or damages arising out of and incurred by the Corporation by such conduct of the contractor will be recovered from the contractor, without prejudice to any other rights and remedies of the Corporation under the Contract and Law. The contractor will also be debarred from participating in any future tenders of the Corporation for a period of five years. After the completion of prescribed period of five years, the party may be allowed to participate in the future tenders of FCI provided all the recoveries/dues have been effected by the Corporation and there is no dispute pending with the contractor/party.

(v) If the successful tenderer had previously held any contract and furnished security deposit, the same shall not be adjusted against this tender and a fresh security deposit will be required to be furnished."

8. Under clause 7 of NIT, the Contractor is required to furnish

(a) security deposit equivalent to 5% of the value of the contract (b) bank guarantee equivalent to 10% of the value of the contract and (c) bank guarantee equivalent to 10% of the value of the contract for relaxation in eligibility conditions. A bare reading of clause 7(ii) of NIT makes it clear that fifteen days' further time may be granted by the Employer for enabling the Contractor to furnish unconditional bank guarantee as required under sub-clause (b) and sub-clause (c) of clause 7(i). However, nowhere under NIT is there any indication that the condition under clause 7(i)(a) requiring the Contractor to furnish 5% of the total value of the contract within fifteen working days is not mandatory.

9. FCI acted in the matter following the conditions under NIT and, therefore, on that count no fault can be found with the order of termination of contract. However, a bonafide decision of the Employer can also be challenged on the ground of proportionality and public interest. No doubt adherence to the conditions under NIT would also be in public interest, but then, the Employer was required to weigh its options vis-a-vis its own interest which, in turn, would have public interest element. The termination of the contract and consequent fresh award of contract by inviting NIT would have taken minimum 45 days and the nature of the work was such that the public interest would have suffered by having recourse to fresh tender. The respondent was a successful bidder and, therefore, his capacity

to carry on and complete the work was not in question. His stand that on the next working day he furnished the requisite bank guarantee through RTGS was not disputed by FCI. Therefore, the appellant was required to take a conscious decision in public interest and not to go merely by clause 7 of NIT. That was moreso necessary because sub-clause (iv) under clause 7 of NIT provides drastic consequences in the event the Contractor fails to furnish security deposit by the due date, such as, (a) summary termination of the contract (b) forfeiture of earnest money (c) debarment for a period of five years from participating in any future tender and (d) recovery of loss and damages arising out of and incurred by FCI on account of failure of the Contractor to furnish security deposit by the due date.

10. The writ Court has limited jurisdiction under Article 226 of the Constitution of India in the matters relating to contract but that is not a prohibited zone in every situation. The writ Court can examine the decision making process to arrive at a conclusion whether the decision to terminate the contract was unreasonable. The writ Court cannot look the other way ignoring such administrative actions which are not in public interest on the ground that any interference would amount to encroachment on the exclusive right of the executive. The decision taken by FCI to terminate the contract and debar the respondent for five years from participating in its future tenders may be in consonance with clause 7 of NIT but such decision was palpably unreasonable and wrong, not being in the interest of any of the stakeholders. Admittedly, the respondent did everything in his command to adhere to and fulfill the conditions under NIT and while so he cannot be penalized for something which was beyond his control.

11. On the above issue, we would refer to the judgment in "Rajasthan State Industrial Development & Investment Corpn. v. Diamond & Gem Development Corpn. Ltd." (2013) 5 SCC 470 wherein the Hon'ble Supreme Court has held as under:

"21. It is evident from the above that generally the Court should not exercise its writ jurisdiction to enforce the contractual obligation. The primary purpose of a writ of mandamus is to protect and establish rights and to impose a corresponding imperative duty existing in law. It is designed to promote justice (ex debito justitiae). The grant or refusal of the writ is at the discretion of the court. The writ cannot be granted unless it is

established that there is an existing legal right of the applicant, or an existing duty of the respondent. Thus, the writ does not lie to create or to establish a legal right, but to enforce one that is already established. While dealing with a writ petition, the court must exercise discretion, taking into consideration a wide variety of circumstances, inter alia, the facts of the case, the exigency that warrants such exercise of discretion, the consequences of grant or refusal of the writ, and the nature and extent of injury that is likely to ensue by such grant or refusal."

12. The writ Court referred to the judgments in "Gorkha Security Services v. Govt. (NCT of Delhi) and others" (2014) 9 SCC 105, "Kulja Industries Ltd. v. Western Telecom Project BSNL" (2014) 14 SCC 731, "Bakshi Security & Personnel Services (P) Ltd. v. Devkishan Computed (P) Ltd. and others" (2016) 8 SCC 446, "Joshi Technologies International Inc. v. Union of India and others" (2015) 7 SCC 728, "M/s Poddar Steel Corporation v. M/s Ganesh Engineering Work and others" (1991) 3 SCC 273, "ABL International Limited and another v. Export Credit Guarantee Corporation of India Limited and others" (2004) 3 SCC 553, "Global Energy Ltd. and another v. Adani Exports Ltd. and others" (2005) 4 SCC 435, "Kisan Sahkari Chini Mills Limited and others v. Vardan Linkers and others" (2008) 12 SCC 500, "Noble Resources Ltd. v. State of Orissa and others" (2006) 10 SCC 236, "Raghunath Thakur v. State of Bihar" (1989) 1 SCC 299 and "Patel Engg. Ltd. v. Union of India" (2012) 11 SCC 257, to hold as under:

"24. In the aforesaid judgments, the Hon'ble Supreme Court held that when a contract is entered between two private parties, in case of any breach of contract by one party, the other party has every right to blacklist the defaulter and such right is unqualified. However, in a situation where an order of blacklisting has been passed by the State or its instrumentalities, such order is within the realm of power of judicial review of the Writ Court and the same has to be tested in the touchstone of the principle of natural justice, doctrine of proportionality, reasonableness and fairness. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the government/government agencies for the purposes of gains. Thus, prior to taking such a harsh decision, the person concerned should be given an opportunity to represent his case before he is put on the blacklist. The show cause must not be a mere formality, rather the same should specifically mention the grounds which necessitates the action and also the proposed action by the department so that the person aggrieved may explain the circumstances properly.

25. On perusal of the impugned order dated 26.04.2018, it appears that the order of termination of contract coupled with the

debarment of the petitioner has been passed without describing any cogent or strong reason for the same. The order cancelling the awarded work is one aspect while the order of blacklisting is another. The order of termination of contract is passed merely for violation of any mandatory terms and conditions of the contract, however, the order of blacklisting debars any person from dealing with the government instrumentality within the time frame mentioned in the order. Thus, before passing the order of blacklisting, it is a sine-qua-non to hear the alleged delinquent to make sure so as to satisfy as to whether the default is intentional or has been caused under the situation beyond one's control. In the present case, the respondent-FCI has not called upon the petitioner to explain the circumstances under which the delay was caused before passing the order of debarment. The impugned order has been passed merely on the ground that in case of default, the respondent-FCI has the discretion to pass any such order. It is a settled position of law that the State or its instrumentality while dealing with any private individual has to exercise the said discretion in a fair and equitable manner.

26. For the aforesaid reason, I am of the view that the decision making process of the respondent-FCI in blacklisting the petitioner is vitiated as the same has been passed in violation of the principles of natural justice i.e., without affording any opportunity to the petitioner to explain the reasons of alleged default."

13. The learned counsel for the appellant contends that there was no necessity to issue a notice to the respondent as the order of debarment for five years is a natural consequence on failure of the Contractor to submit security deposit as provided under clause 7(iv) of NIT, which was made known to the respondent.

14. We would have agreed with the learned counsel for the appellant that as held in "Aligarh Muslim University v. Mansoor Ali Khan" (2000) 7 SCC 529 the Courts do not exercise writ jurisdiction in futility, but then, there is also a well accepted proposition in law that the Employer cannot act with predetermined mind. Without knowing what would be the defence put forth by the Contractor, if the order of debarment without a show-cause notice is upheld the Court would be approving a guesswork in administrative decisions. The day on which the order of termination of contract and debarment was passed, it was a unilateral decision taken by the Employer. Even if, as contended by Mr. Nipun Bakshi, the learned counsel for the appellant, the consequences are incorporated under NIT, the Employer was required to see that failure on the part of the respondent to furnish the security deposit occasioned on account of a technical glitz in the banking system. Therefore, the Employer's decision to terminate the contract

unilaterally without a show cause notice to the respondent was rightly not approved by the writ Court.

15. In this context, we may refer to"Dharampal Satyapal Ltd. v. CCE" (2015) 8 SCC 519 wherein the Hon'ble Supreme Court has observed as under:

"28. It is on the aforesaid jurisprudential premise that the fundamental principles of natural justice, including audi alteram partem, have developed. It is for this reason that the courts have consistently insisted that such procedural fairness has to be adhered to before a decision is made and infraction thereof has led to the quashing of decisions taken. In many statutes, provisions are made ensuring that a notice is given to a person against whom an order is likely to be passed before a decision is made, but there may be instances where though an authority is vested with the powers to pass such orders, which affect the liberty or property of an individual but the statute may not contain a provision for prior hearing. But what is important to be noted is that the applicability of principles of natural justice is not dependent upon any statutory provision. The principle has to be mandatorily applied irrespective of the fact as to whether there is any such statutory provision or not."

16. For the aforesaid reasons, we are not inclined to interfere in the matter and, accordingly, L.P.A. No. 504 of 2018 is dismissed.

17. I.A. No. 8285 of 2018 and I.A. No. 9900 of 2018 stand disposed of.

(Shree Chandrashekhar, J.)

(Ratnaker Bhengra, J.) Jharkhand High Court, Ranchi Dated: 28th June 2022 R.K./NAFR