Patna HC Upholds Blacklisting of PDS Transporter Whose Tractor Was Cited in FIR for Diverting Food Grains

The Patna High Court dismissed a writ petition challenging the cancellation of a transporting contract, three-year blacklisting, and forfeiture of security deposit and bank guarantee by the Bihar State Food and Civil Supply Corporation, after an FIR named the petitioner's vehicle in an alleged Public Distribution System food grain diversion.

A Division Bench of the Patna High Court, comprising Justice Sudhir Singh (who authored the judgment) and Justice Ranjan Kumar Jha, has dismissed the writ petition filed by Dharmendra Kumar Patel, a transporting and handling agent engaged by the Bihar State Food and Civil Supply Corporation (BSFC) for doorstep delivery of food grains in Kaimur district. The petitioner had challenged the cancellation of his agreement, his blacklisting for three years, and the forfeiture of his security deposit and bank guarantee following an FIR that named his tractor and trailer as the vehicles used in an alleged diversion of PDS rice. The bench held that the Corporation acted within the four corners of the contractual provisions, that natural justice was duly observed, and that no case for interference under Article 226 of the Constitution was made out.

From Tender to Agreement: How the Contract Arose

In February 2016, BSFC issued a Notice Inviting Tender for appointing transporting and handling agents for doorstep delivery of food grains under the Public Distribution System across several Bihar districts, including Kaimur. Dharmendra Kumar Patel participated in the tender process. After being found eligible by both the District Transport Committee and the Head Office Transport Committee, he was appointed as Transporting and Handling Agent for Kaimur.

An agreement was executed between the parties on 31 August 2016, entrusting the petitioner with transportation and doorstep delivery of food grains for the prescribed contractual period. This agreement, read alongside the NIT, formed the contractual framework at the centre of the dispute.

The FIR and the Corporation's Response

On 15 September 2017, an incident occurred that triggered the chain of events leading to the writ petition. Bhabhua P.S. Case No. 577 of 2017 was registered. The FIR alleged that 26 bags of rice meant for the PDS were being transported for black marketing in the petitioner's tractor bearing Registration No. BR-45G-3141 and trailer bearing Registration No. BR-45G-3143. The police intercepted and seized the vehicles. The FIR also alleged that the vehicles were being used to facilitate illegal diversion of food grains meant for PDS distribution.

The case was registered under Section 7 of the Essential Commodities Act against the concerned PDS dealer, Shri Anirudh Prasad. The petitioner's vehicles were specifically named in the FIR as the means of transport involved.

Taking note of the incident, the Managing Director of BSFC issued a show cause notice to the petitioner on 10 October 2017. The petitioner submitted his reply on 17 October 2017, denying all allegations. The District Manager, acting upon the Managing Director's decision communicated vide Memo No. 13058 dated 23 December 2017, then passed Memo No. 2261 dated 29 December 2017, cancelling the petitioner's agreement, blacklisting him for three years, and forfeiting both the security deposit and the bank guarantee.

The Petitioner's Case Before the High Court

The petitioner sought quashing of Memo No. 2261 dated 29 December 2017, re-engagement as transporting agent for Kaimur, and ancillary relief. His counsel advanced several arguments before the Division Bench.

The primary contention was that the entire action purportedly proceeded on an alleged violation of Clause 10.2 of the agreement, whereas, the petitioner claimed, no such clause existed in the tender conditions or the executed agreement. Counsel also submitted that there was no material on record establishing the petitioner's involvement in black marketing or diversion of PDS food grains — the allegation rested solely on seizure of goods from his vehicle, even though, according to the petitioner, the PDS food grains had already been delivered to the concerned dealer and the seized bags were not PDS bags.

The petitioner further argued that the FIR did not attribute any overt act to him personally, and that the concerned PDS dealer himself had stated on record that the seized grains were his own agricultural produce. Counsel urged that in these circumstances, the impugned orders were arbitrary, mala fide, unsupported by any legal or factual basis, and violative of Articles 14 and 19(1)(g) of the Constitution.

A separate submission was that the Corporation ought to have awaited the outcome of the criminal proceedings before taking administrative action against the petitioner.

The Corporation's Defence

Counsel for BSFC contended that the cancellation, blacklisting, and forfeiture were fully justified under Clauses 10.2, 11 and 15.4 of the NIT read with Clause 17 of the agreement. The Corporation argued that these provisions collectively governed the transporter's obligations and empowered BSFC to take action in the event of any breach. The impugned orders, counsel submitted, were passed after following due procedure and in accordance with contractual provisions, and the writ petition deserved dismissal.

How the Bench Read the Contractual Clauses

The bench reproduced the relevant clauses in detail and then analysed them conjointly. Clause 10.2 of the NIT provided for recovery of loss caused to the Corporation during transportation work by forfeiture of bank guarantee or security deposit. Clause 11 placed the responsibility for safe transportation and delivery of food grains squarely on the transporter. Clause 15.4 empowered BSFC to terminate the agreement and blacklist the contractor for breach of contractual obligations. Clause 17 of the agreement similarly permitted termination, blacklisting, and debarment for up to five years from future transportation work, along with forfeiture of the security deposit and encashment of the bank guarantee, in the event of breach.

The court rejected the petitioner's argument that Clause 10.2 could not be invoked in the absence of a quantified pecuniary loss to the Corporation. The bench held that Clause 10.2 could not be read in isolation. Clauses 15.4 and 17 independently empowered the Corporation to terminate the agreement and blacklist the contractor upon breach, without requiring proof of a specific monetary loss. The contractual provisions had to be construed harmoniously.

On the petitioner's submission that the seized goods were not PDS bags, the bench observed that this may have relevance in the criminal proceedings. However, the Corporation was not required to await the outcome of the criminal prosecution before taking an administrative decision on the continuation of a contractor handling essential commodities under the PDS. The bench stated that the contractual relationship was founded upon confidence, integrity and accountability, and that once the competent authority had issued notice, considered the explanation, and arrived at a bona fide satisfaction that the petitioner's conduct was inconsistent with the standards expected of a PDS transporter, the action could not be said to be beyond the contract.

Judicial Review of Blacklisting: The Legal Framework Applied

The bench framed two issues: whether the Corporation was justified in invoking the contractual clauses, and whether the impugned action suffered from arbitrariness, perversity or procedural infirmity warranting interference under Article 226.

On the power to blacklist, the court drew on the Supreme Court's ruling in Patel Engineering Ltd. v. Union of India, (2012) 11 SCC 257, which recognised that the authority of the State or its instrumentalities to blacklist a person is an inherent concomitant of executive power to enter into contracts, subject to the requirement that such power be exercised fairly and for a legitimate purpose. The bench also cited Kulja Industries Ltd. v. Chief General Manager, Western Telecom Project, BSNL, (2014) 14 SCC 731, for the proposition that while the power of blacklisting is inherent, its exercise must satisfy the requirements of fairness, proportionality and observance of natural justice.

In the present case, the petitioner had been served with a show cause notice specifically setting out the allegations, was given an opportunity to reply, and the reply was considered before the impugned order was passed. The bench held that procedural safeguards recognised in these decisions stood duly complied with.

On the scope of judicial review, the bench applied the principles from Tata Cellular v. Union of India, (1994) 6 SCC 651, which confines review in contractual matters to the legality of the decision-making process — examining illegality, irrationality, and procedural impropriety — rather than the correctness of the decision itself. The bench also referred to Michigan Rubber (India) Ltd. v. State of Karnataka, (2012) 8 SCC 216, and Silppi Constructions Contractors v. Union of India, (2020) 16 SCC 489, both of which caution constitutional courts to exercise restraint in contractual and commercial matters unless the decision-making process is demonstrably arbitrary, mala fide, or suffers from patent illegality.

Applying these tests, the bench found no material to indicate mala fides, extraneous considerations, or colourable exercise of power. The petitioner had placed no cogent material on record to show discriminatory treatment or that similarly situated contractors were treated differently. The Corporation had acted on the information received, issued notices, considered the replies, and passed orders in exercise of powers traceable to the contractual terms.

The court reiterated that it cannot sit in appeal over the subjective satisfaction of the competent authority merely because another view may also be possible. Having held that the Corporation possessed the contractual authority and had followed the prescribed procedure, the court found that the scope of judicial review was considerably limited and no case for interference was made out.

Outcome

The Division Bench dismissed Civil Writ Jurisdiction Case No. 15550 of 2018. The bench made clear that it had not expressed any opinion on any other contractual or monetary claims that may be available to the petitioner. The petitioner was expressly granted liberty to invoke Clause 20 of the agreement and initiate arbitration proceedings before the sole arbitrator designated thereunder — the CMD/Managing Director of BSFC or a person nominated by the CMD/Managing Director — in accordance with the Arbitration and Conciliation Act, 1996. All pending applications were also disposed of.