Case Background
The petitioner in all three writ cases was working as a Transport-cum-Handling Agent for Bihar State Food and Civil Supply Corporation Ltd. (the corporation). His work was governed by an agreement dated 2 February 2015, produced in the writ petition as Annexure 2.
Under this agreement, the petitioner was responsible for transporting foodgrains from Food Corporation of India depots to the corporation’s godowns and to other destinations. Clause 2(d) of the agreement required him to deliver the foodgrains to the designated godown by the shortest motorable route within a reasonable travelling period.
That clause also contained a strict presumption: if the transporter failed to deliver foodgrains within reasonable time, it would be presumed that his intention was to default or to black market the foodgrains by illegal means. In such a case, the corporation (the first party) could take legal action, including termination of agreement, blacklisting, debarment from future transportation work and other lawful action.
According to the impugned order contained in Memo No. 3898 dated 28 March 2016, there was delay in transportation of foodgrains by the petitioner in consignments loaded on trucks bearing Nos. BR10G-1884 and BR10GC-4530. On this basis, government officers lodged criminal cases against him.
The Block Supply Officer, Jagdishpur, lodged Jagdishpur P.S. Case No. 37 of 2016 on 5 February 2016. The Block Supply Officer, Sultanganj, lodged Sultanganj P.S. Case No. 20 of 2016 on 6 February 2016. In both cases, it was alleged that the petitioner had indulged in blackmarketing of foodgrains.
After these FIRs, the corporation issued a show cause notice to the petitioner. The notice informed him that two criminal cases had been registered for alleged breach of agreement conditions and acts of blackmarketing, and proposed cancellation of his agreement.
The petitioner submitted his explanation. However, the Managing Director of the corporation, by Memo No. 3898 dated 28 March 2016, passed a common order against him. This order: (1) cancelled the agreement and placed his name in the blacklist; (2) directed forfeiture of the security amount deposited by him as bank guarantee; and (3) ordered recovery of monetary loss said to have been caused to the corporation through him.
The petitioner challenged these actions by filing three writ petitions before the Patna High Court: CWJC No. 14665 of 2016, CWJC No. 16064 of 2016 and CWJC No. 16029 of 2016. All three petitions arose out of the same memo and were heard together.
What the Court Examined and Decided
The single judge, Hon’ble Mr. Justice Rajeev Ranjan Prasad, heard all three writ petitions together as they stemmed from the same impugned order.
First, the Court recorded the contractual framework. Under clause 2(d) of the agreement dated 2 February 2015, the petitioner as transporter had to deliver foodgrains to designated godowns quickly and by the shortest route. Failure to deliver within reasonable time attracted a presumption of default or blackmarketing, allowing the corporation to terminate, blacklist and take other legal action.
From the impugned order, the Court noted that there had been some delay in transportation for consignments carried in the two trucks mentioned. The two FIRs from Jagdishpur and Sultanganj were registered on that basis, accusing the petitioner of blackmarketing.
A show cause notice was then issued to the petitioner citing these two criminal cases and proposing cancellation of his agreement for alleged breach of its terms. He replied, but the Managing Director did not accept his explanation and passed the impugned order.
Before the High Court, the petitioner’s counsel raised several points. One important argument was that the show cause notice mentioned only two criminal cases, but while passing the impugned order the corporation also relied on one more case about which no opportunity of explanation had been given. On this ground, he claimed violation of natural justice.
He further tried to show from the FIRs in Jagdishpur P.S. Case No. 37 of 2016 and Sultanganj P.S. Case No. 20 of 2016 that the allegations could not even prima facie amount to blackmarketing. In the first case, according to him, there was merely a delay of two days in delivering the foodgrains. In the second case, the foodgrains seized by the Block Supply Officer allegedly belonged to another person, and were released in that person’s favour. Hence, according to the petitioner, the foundation for alleging blackmarketing by him was weak.
The petitioner also challenged rescission of the contract and forfeiture of the bank guarantee. He argued that the corporation had not determined any specific loss or damage caused by him. Despite this, the impugned order vaguely directed that monetary loss caused to the corporation would be recovered from his bills, and his security deposit was forfeited.
On blacklisting, the petitioner’s case was that permanent blacklisting was illegal and disproportionate. He pointed out that the corporation had decided to blacklist him permanently even though the termination and forfeiture orders were themselves under challenge. He relied on the Supreme Court decision in M/s Kulja Industries Limited v. Chief Gen. Manager, W.T. Proj., BSNL and others, reported in AIR 2014 SC 9, where it was held that permanent blacklisting is not permissible and offends Article 19(1)(g) of the Constitution of India.
On the other side, counsel for the corporation argued that issues relating to termination of the agreement and forfeiture of security deposit were essentially disputed questions of fact. Evidence would be required to decide whether there was delay, whether any loss was caused, and what amount, if any, was recoverable.
The corporation therefore urged that the High Court, exercising writ jurisdiction under Article 226 of the Constitution, should not act as a fact-finding court on these contract disputes. Instead, both parties had already agreed in clause 17 of the agreement to refer such disputes to a sole arbitrator.
It was pointed out that, though clause 17 originally named the corporation’s CMD/Managing Director as sole arbitrator, after the Arbitration and Conciliation (Amendment) Act, 2015 which came into effect on 23 October 2015, the CMD/Managing Director would not be eligible to act as arbitrator. However, the parties could still avail arbitration by agreeing on an independent sole arbitrator or by approaching the Court for appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Counsel for the corporation further stated that the question of realisation of alleged monetary loss from the petitioner’s bills was also a matter fit for arbitration. In short, their stand was that termination of contract, forfeiture of security deposit and recovery of losses were all arbitrable disputes to be decided in appropriate arbitration proceedings.
Regarding blacklisting, the corporation took a more conciliatory position. Acknowledging judicial pronouncements on blacklisting, its counsel accepted that the order passed was in the nature of permanent blacklisting and had serious civil consequences. He suggested that the matter of blacklisting may be reconsidered afresh by the corporation after giving the petitioner a hearing and keeping in mind the law laid down by the courts.
After hearing both sides and examining the records, the Patna High Court accepted that the challenge to the blacklisting deserved to succeed. The Court found that the blacklisting order was effectively permanent and had been based solely on the lodging of three FIRs against the petitioner.
The Court also recorded that, in the two criminal cases earlier discussed, even charges had not yet been framed. This procedural stage in the criminal cases was considered relevant, as a mere FIR without framing of charges is a weak basis for imposing a lifelong ban from business.
On these grounds, supported by judicial precedents including the Supreme Court ruling cited by the petitioner, the Court set aside the part of Memo No. 3898 dated 28 March 2016 which placed the petitioner in blacklist. Specifically, it annulled the order at Serial No. 1 of that memo insofar as it related to blacklisting.
At the same time, the Court did not completely bar the corporation from taking action in future. It granted liberty to the corporation to reconsider the question of blacklisting afresh. This reconsideration must be based on materials on record, after granting the petitioner an opportunity of hearing, and while keeping in view the judicial pronouncements on blacklisting.
On termination of contract, the Court noted that the agreement period had already expired by the time of hearing. This made reinstatement of the contract practically meaningless.
For the remaining parts of the impugned order—namely, forfeiture of security deposit and recovery of monetary loss (Serial Nos. 2 and 3)—the Court agreed with the corporation. It held that these were matters to be decided in arbitration under clause 17 of the agreement. The parties were free to choose a sole arbitrator mutually, or one party could approach the competent court for appointment of a sole arbitrator under the Arbitration and Conciliation Act.
Accordingly, CWJC No. 14665 of 2016 was allowed only to the limited extent of setting aside the blacklisting. CWJC No. 16064 of 2016 and CWJC No. 16029 of 2016 were disposed of by giving liberty to the parties to seek remedies before an arbitration tribunal in terms of their agreement.
Why This Judgment Matters
This judgment is important for transport contractors and other small suppliers working with government corporations in Bihar.
First, it shows that a government body cannot permanently blacklist a contractor simply because an FIR has been lodged, especially when even charges have not been framed. Blacklisting has serious consequences on a person’s right to carry on business and must follow fair procedure.
Second, the Patna High Court has underlined that disputes about contract termination, forfeiture of security and recovery of money, which involve detailed facts and accounts, should normally be taken to arbitration when the contract provides for it. Writ courts will not usually act as trial forums for such factual disputes.
For contractors facing similar action, this decision suggests two clear paths: challenge unfair or permanent blacklisting before the High Court, and pursue money disputes through arbitration as agreed in their contracts.
Legal Issues and Answers
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Issue: Can a government corporation permanently blacklist a transport contractor only because criminal cases have been registered, without considering the stage of those cases and without proper hearing?
Answer: No. The Patna High Court set aside the permanent blacklisting, holding that such action, based solely on FIRs and without full consideration and hearing, is unsustainable. The corporation must reconsider blacklisting afresh after hearing the contractor and keeping judicial precedents in mind. -
Issue: Should disputes about termination of a transport contract, forfeiture of security deposit and recovery of alleged losses be decided in writ proceedings when an arbitration clause exists?
Answer: No. The Court held that these are disputed questions of fact suitable for arbitration under the agreement. The parties should get their disputes decided through a sole arbitrator in accordance with clause 17 and the Arbitration and Conciliation Act, 1996.
Cases Cited by the Court
- The petitioner relied on M/s Kulja Industries Limited v. Chief Gen. Manager, W.T. Proj., BSNL and others, AIR 2014 SC 9, to argue that permanent blacklisting is impermissible and offends Article 19(1)(g) of the Constitution of India.
Case Details
Case Numbers: CWJC No. 14665 of 2016; CWJC No. 16064 of 2016; CWJC No. 16029 of 2016
Case Title: Subodh Kumar Gupta v. The State of Bihar & Ors. (in all three connected writ petitions)
Citation: 2019 (3) PLJR 277
Coram: Hon’ble Mr. Justice Rajeev Ranjan Prasad
Advocates:
- For the petitioner (all three cases): Mr. Sanjeet Kumar, Advocate
- For the State (CWJC No. 14665 of 2016): Mr. Alok Ranjan, AC to AAG 5
- For the State (CWJC No. 16064 of 2016): Mr. Manoj Kumar, AC to GP 4
- For the State (CWJC No. 16029 of 2016): Mr. Arvind Ujjwal, SC 4
- For Bihar State Food and Civil Supply Corporation Ltd. (all three cases): Mrs. Namrata Mishra, Advocate
Nature of the Case: Writ petitions under Article 226 of the Constitution of India challenging a common order of the Managing Director of Bihar State Food and Civil Supply Corporation Ltd. regarding termination of transport contract, forfeiture of security deposit, recovery of alleged loss and blacklisting.
Date of Judgment: 25 April 2019
Impugned Order: Memo No. 3898 dated 28 March 2016 issued by the Managing Director, Bihar State Food and Civil Supply Corporation Ltd.
Link to Judgment: MTUjMTQ2NjUjMjAxNiMxI04=-jD3zaad856M=
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