Case Background
The petitioner was selected as a Transportation-cum-Handling Contractor for door-step delivery of food grains in the district of Madhubani. He entered into an agreement with Bihar State Food and Civil Supplies Corporation on 02.03.2021.
While he was working under this agreement, an FIR was lodged on 30.05.2021 as Madhepura P.S. Case No. 83 of 2021. The FIR was registered under Sections 420/34 of the Indian Penal Code and Section 7 of the Essential Commodities Act. The case related to alleged diversion and black marketing of food grains carried in a vehicle bearing Registration No. BR32GB-3954.
After the FIR, the Corporation issued a show-cause notice vide Letter No. 842 dated 31.05.2021, asking the petitioner to explain his position regarding the incident. On 01.06.2021, another letter, Memo No. 848, was issued by the Deputy Managing Director, asking him to explain the GPS location and movement of his vehicle.
The petitioner submitted his replies denying the allegations and narrating facts in his defence. Despite this, the Corporation, by Letter No. 856 dated 03.06.2021, stayed his agreement with immediate effect and handed over the work to another contractor.
Later, by Memo No. 2469 dated 03.12.2021 issued under the signature of the District Manager (respondent no. 5), the Corporation rescinded the petitioner’s agreement, blacklisted him for five years, ordered forfeiture of his security deposit and bank guarantee, decided to recover alleged loss of food grain amounting to Rs. 2,30,594.28, and directed that his private vehicle should not be used for transportation in distribution of food grains to PDS shops.
The petitioner then approached the Patna High Court under its civil writ jurisdiction seeking quashing of Memo No. 2469 dated 03.12.2021 and the connected actions of blacklisting, forfeiture and recovery.
During the pendency of the writ petition, the period of the contract expired and the Corporation floated a fresh tender vide NIT No. 272 dated 27.01.2024, leading to appointment of new bidders. The petitioner therefore did not press his challenge against cancellation of the contract and confined his grievance to the blacklisting, forfeiture and recovery.
What the Court Examined and Decided
The division bench of the Patna High Court, comprising Hon’ble the Chief Justice and Hon’ble Mr. Justice Harish Kumar (authoring the oral judgment), heard the matter on 02.04.2024.
On behalf of the petitioner, it was argued that he had given detailed replies to the initial show-cause notices. Despite this, without conducting any enquiry, the Corporation stayed his agreement and shifted the work to another contractor. Later, without issuing any further show-cause notice indicating the proposed punitive action, the Corporation passed the impugned order dated 03.12.2021.
The petitioner’s counsel emphasised that the impugned order was based entirely on the FIR in Madhepura P.S. Case No. 83 of 2021. Subsequently, a final report was submitted in that criminal case and the petitioner was not sent up for trial for want of evidence. The jurisdictional criminal court accepted this final report. A copy of the final report and the order of acceptance was brought on record as Annexure P/11.
On this basis, it was argued that once the very foundation (the FIR and criminal implication) no longer existed, the order of blacklisting, forfeiture of earnest money and recovery of alleged loss could not survive. It was also argued that the original show-cause notices did not mention any proposed consequences such as blacklisting, rescinding of agreement, forfeiture or recovery.
The petitioner relied on a Full Bench judgment of the Patna High Court in Ghuran Paswan Vs. State of Bihar, 2024 (2) BLJ 334, and on a division bench judgment in Panash Infotech Pvt. Ltd. Vs. Chief Secretary, Government of Bihar & Ors., 2024 (1) BLJ 311, to support his arguments on procedural fairness and requirement of proper notice.
On the other hand, the Corporation, through its senior counsel, drew the Court’s attention to relevant clauses in the “Instructions to Bidders” and the agreement, particularly Clause 4(a) to 4(g). It was submitted that even though the petitioner was not sent up for trial, the charge-sheet and the order of cognizance disclosed that the vehicle in question and its driver were found involved in the offence of black marketing of food grains. Therefore, cognizance of offences had been taken and the Corporation’s action was justified under the agreement clauses.
The Court focused its judicial review on the procedure adopted by the Corporation leading to rescinding of the agreement and imposition of penalties, including blacklisting, forfeiture and recovery.
First, from the notices on record, the Court found that the petitioner was asked only to explain the FIR and the allegation that his vehicle was involved in black marketing. There was no notice informing him of any proposed action such as blacklisting, cancellation of contract, forfeiture of amounts, or recovery of loss, in case his explanation was not found satisfactory.
The Court noted that before passing the impugned order, the Corporation had not served any show-cause notice indicating the proposed punitive measures. The absence of such notice was critical.
To underline this, the Court quoted paragraphs 24, 31 and 32 of the Supreme Court decision in Oryx Fisheries Pvt. Ltd. Vs. Union of India & Ors., (2010) 13 SCC 427. The Supreme Court in that case had held that a quasi-judicial authority must act fairly and with an open mind while initiating show-cause proceedings, and that the person proceeded against must feel that he is getting a real opportunity to rebut allegations, not facing a prejudged mind.
The Court then referred to the Supreme Court judgment in Gorkha Security Services Vs. Government (NCT of Delhi) & Ors., (2014) 9 SCC 105. It quoted paragraphs 21 and 22, where the Supreme Court laid down that a show-cause notice should clearly mention:
1. The material and grounds necessitating action, and
2. The specific penalty or action proposed to be taken.
The Supreme Court particularly stressed that when blacklisting is contemplated, mentioning the proposed action becomes even more imperative, as blacklisting is the harshest possible step. The notice must inform not only the grounds but also the consequence that may follow if the explanation is unsatisfactory.
Applying these principles, the Patna High Court held that mentioning the proposed action in the show-cause notice—whether rescission of agreement, blacklisting, forfeiture or recovery—is an essential requirement rooted in principles of natural justice. In the present case, this requirement had not been met.
The Court further observed that the petitioner had not been served with any show-cause notice before forfeiture of the earnest money or before quantifying and claiming the alleged loss of Rs. 2,30,594.28. The method of assessing or quantifying this loss was also not disclosed to the petitioner.
Another serious defect noted by the Court was that the impugned order did not show any consideration of the petitioner’s show-cause replies. There was no indication of application of mind to his defence. The order simply proceeded on the basis of the FIR, without dealing with his explanations.
Considering the entire factual matrix and the law laid down in Oryx Fisheries and Gorkha Security Services, the Court concluded that the show-cause notice issued by the Corporation was not in accordance with law, as it did not project the consequences and proposed action to be taken against the petitioner in case his explanation was found unsatisfactory. Therefore, the subsequent blacklisting and related punishments could not be sustained.
Consequently, the Court decided to dispose of the writ petition with directions instead of examining the merits of the allegations about black marketing.
The Court directed the Corporation to issue a fresh show-cause notice to the petitioner, clearly indicating the proposed action. The petitioner was given liberty to file an adequate reply to this fresh notice.
Upon receiving the reply, the Corporation or the competent authority was directed to consider his explanation and pass a reasoned and speaking order. While doing so, they must specifically consider the petitioner’s defence, particularly the fact that he has not been sent up for trial in the criminal case for want of evidence and that the final report has been accepted by the jurisdictional criminal court.
In light of this decision, the Court made it clear that the impugned Memo No. 2469 dated 03.12.2021 would stand set aside. The writ petition was accordingly allowed to the extent indicated, meaning the earlier blacklisting and related penalties no longer operate, but the Corporation is free to restart the process lawfully by issuing a fresh, properly worded show-cause notice.
Why This Judgment Matters
This judgment is important for contractors who work with government departments and corporations, especially in sectors like PDS supply, transport and handling of food grains.
The Patna High Court has made it clear that even when there are allegations of serious misconduct such as diversion or black marketing of food grains, the authority cannot punish a contractor without following basic fairness.
Before cancelling contracts, blacklisting, forfeiting security deposits, or recovering alleged losses, authorities must send a proper show-cause notice. This notice must not only list the allegations but must clearly mention what punishment is being proposed.
For small transporters and handling contractors, this means that they must be given a real chance to defend themselves. Authorities cannot simply rely on the existence of an FIR or criminal case, especially when later the person is not even sent up for trial.
The judgment also reminds government bodies that orders must show that the authority has actually read and considered the contractor’s reply. A mechanical order, without dealing with the defence, is vulnerable to being set aside.
Legal Issues and Answers
- Issue: Can a government corporation blacklist a contractor, rescind his agreement, forfeit his security deposit and recover alleged loss without issuing a show-cause notice mentioning the proposed actions and without considering his explanation?
Answer: No. The Patna High Court held that such action violates principles of natural justice. A show-cause notice must state both the grounds and the proposed penalty, and the authority must consider the contractor’s reply and pass a reasoned, speaking order. The impugned order was therefore set aside and a fresh procedure directed. - Issue: Is it permissible to base blacklisting and related penalties solely on an FIR when a final report later shows that the contractor is not being sent up for trial?
Answer: The Court did not finally decide this point on merits but directed that, when reconsidering the matter after issuing a fresh notice, the Corporation must specifically take into account that the petitioner has not been sent up for trial and that the final report has been accepted by the jurisdictional court.
Cases Cited by the Court
- Oryx Fisheries Pvt. Ltd. Vs. Union of India & Ors., 2010 (13) SCC 427
- Gorkha Security Services Vs. Government (NCT of Delhi) & Ors., 2014 (9) SCC 105
- Ghuran Paswan Vs. State of Bihar (Full Bench), 2024 (2) BLJ 334 (cited by petitioner)
- Panash Infotech Pvt. Ltd. Vs. Chief Secretary, Government of Bihar & Ors., 2024 (1) BLJ 311 (cited by petitioner)
Case Details
Case Number: Civil Writ Jurisdiction Case No. 3995 of 2024
Case Title: Naveen Kumar vs. The State of Bihar & Ors.
Citation: 2024 (2) PLJR 419
Coram: Hon’ble the Chief Justice; Hon’ble Mr. Justice Harish Kumar
Date of Judgment: 02.04.2024
Advocates: Mr. Rama Kant Sharma, Sr. Advocate for the petitioner; Mr. Anjani Kumar, Sr. Advocate for Bihar State Food and Civil Supplies Corporation (respondents)
Nature of the Case: Writ petition (civil) challenging blacklisting order, rescinding of contract, forfeiture of security deposit and recovery of alleged loss.
Link to Full Judgment: Click here to read the official judgment of the Patna High Court
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