Court affirms Bihar State Food and Civil Supply Corporation's decision citing adherence to contractual provisions and procedural fairness.
In a significant judgment, the Patna High Court has upheld the decision of the Bihar State Food and Civil Supply Corporation Ltd. to terminate the contract, blacklist, and forfeit the security deposit and bank guarantee of Dharmendra Kumar Patel, a contractor involved in the Public Distribution System (PDS) in Kaimur district. The Division Bench comprising Justices Sudhir Singh and Ranjan Kumar Jha delivered the judgment on June 30, 2026, emphasizing the importance of adherence to contractual obligations and procedural fairness.
The case stemmed from an incident on September 15, 2017, where 26 bags of rice allegedly meant for black marketing were seized from Patel's vehicle. Following this, the corporation issued a show cause notice to Patel, leading to the termination of his contract and blacklisting for three years.
Patel challenged the corporation's decision, arguing that the actions were arbitrary and lacked legal basis, as the seized grains were not intended for black marketing. However, the court found that the corporation acted within its contractual rights and followed due procedure by issuing a notice and considering Patel's response before taking the action.
The judgment highlighted that the scope of judicial review in such matters is limited to examining the legality of the decision-making process rather than the merits of the decision itself. The court noted that the contractual provisions empowered the corporation to terminate agreements and blacklist contractors for breaches, even in the absence of quantified pecuniary loss.
Moreover, the court reiterated the principle that administrative actions under contracts are distinct from criminal liabilities, allowing the corporation to proceed independently of any ongoing criminal proceedings against Patel.
In concluding the judgment, the court dismissed the writ petition, affirming the corporation's decision and advising Patel to seek recourse through arbitration for any unresolved claims.
Bottom line:-
Contractual obligations - Termination of contract, blacklisting, and forfeiture of security deposit and bank guarantee upheld when executed within the scope of contractual provisions and after following due procedure.
Statutory provision(s): Article 226 of the Constitution of India, Clauses 10.2, 11, 15.4, and 17 of the Agreement, Section 7 of the Essential Commodities Act, Arbitration and Conciliation Act, 1996.
