PDS Contractor Accused Of Diverting Foodgrains For Black Marketing Can Be Blacklisted Without Awaiting Trial: Patna High Court
The Patna High Court has held that a contractor engaged for transportation of foodgrains under the Public Distribution System (PDS) can be blacklisted and have the contract terminated without awaiting the outcome of criminal proceedings arising from allegations of diversion of foodgrains for black marketing. The Court observed that contractual action is distinct from criminal liability and may...
The Patna High Court has held that a contractor engaged for transportation of foodgrains under the Public Distribution System (PDS) can be blacklisted and have the contract terminated without awaiting the outcome of criminal proceedings arising from allegations of diversion of foodgrains for black marketing. The Court observed that contractual action is distinct from criminal liability and may be taken independently where the contractor's conduct is found to be inconsistent with the contractual obligations.
A Division Bench of Justice Sudhir Singh and Justice Ranjan Kumar Jha dismissed a writ petition challenging the cancellation of a transportation agreement, blacklisting of the contractor for three years, and forfeiture of the security deposit and bank guarantee.
The respondent-Corporation had invited tenders for appointment of Transporting and Handling Agents for doorstep delivery of foodgrains under the Public Distribution System in various districts of Bihar. The petitioner was selected as the contractor for Kaimur district, following which an agreement was executed on August 31, 2016.
During the subsistence of the contract, an FIR was registered alleging that 26 bags of rice meant for the Public Distribution System were being transported for black marketing in the petitioner's tractor and trailer, which were intercepted and seized by the police. Following the incident, the Managing Director of the Corporation issued a show cause notice. After considering the petitioner's reply, the Corporation cancelled the agreement, blacklisted the petitioner for three years and forfeited his security deposit and bank guarantee.
Before the High Court, the petitioner argued that the impugned action was unsustainable as no material established his involvement in black marketing. He contended that the seized bags were not PDS bags and that even the FIR recorded the concerned dealer's stand that the seized foodgrains were his own agricultural produce. It was further argued that the Corporation ought to have awaited the outcome of the criminal proceedings before taking punitive contractual action.
The Court rejected these submissions, holding that the contractual provisions empowered the Corporation to terminate the agreement and blacklist the contractor upon breach of contractual obligations, independent of any criminal prosecution. The Bench observed:
"Clause 10.2 cannot be read in isolation from Clauses 11, 15.4 and Clause 17 of the agreement. The contractual provisions have to be construed harmoniously. While Clause 10.2 deals with recovery of loss through forfeiture of the security deposit and bank guarantee, Clauses 15.4 and 17 independently empower the Corporation to terminate the agreement and blacklist the contractor upon breach of the contractual obligations. Therefore, the absence of a quantified pecuniary loss by itself does not denude the Corporation of its contractual authority to terminate the contract if the conduct of the transporter amounts to breach of the obligations undertaken under the agreement.”
Addressing the petitioner's contention that the Corporation should have waited for the criminal case to conclude, the Court held that the contractual relationship operated on a different footing. It observed:
“The impugned action is not founded upon the petitioner's criminal liability but upon the contractual obligations governing the relationship between the parties. The standard applicable to administrative action under a contract is distinct from that governing a criminal prosecution. The respondent-Corporation was competent to assess whether the petitioner's conduct justified continuation of the contractual relationship, independent of the result of the criminal case.”
The Court also noted that the petitioner had been served with a detailed show cause notice and his explanation had been duly considered before the impugned action was taken. It therefore found that the principles of natural justice had been substantially complied with.
Holding that the Corporation had acted within the four corners of the contractual provisions while invoking Clauses 10.2, 11, 15.4 and 17 of the tender conditions, the Court found no illegality in the decision to terminate the agreement, blacklist the petitioner and forfeit the security deposit and bank guarantee. The writ petition was accordingly dismissed.
Case Title: Dharmendra Kumar Patel v. State of Bihar and Ors.
Case Number: Civil Writ Jurisdiction Case No. 15550 of 2018.
Appearance: Mr. Amrendra Narayan Rai appeared for the Petitioner. Mr. Shailendra Kumar Singh appeared for the Respondents.