Debarment without prior notice or hearing violates natural justice and is unsustainable.

The petitioners participated in an FCI tender issued by the Assistant General Manager (CE), Food Corporation of India, under E-Tender Notice dated 07.03.2025.

After acceptance of their tender, they were required to furnish a Performance Bank Guarantee of ₹5,48,910 by 12.08.2025. On their request, the deadline was extended to 19.08.2025.

The petitioners created a fixed deposit for the requisite amount on 14.08.2025, but the bank issued the Performance Bank Guarantee only on 20.08.2025, one day after the extended deadline.

The respondents thereafter terminated the tender, forfeited the earnest money deposit of ₹2,01,680, and debarred the petitioners from participating in future FCI tenders for five years by order dated 15.09.2025.

The petitioners challenged the termination, forfeiture and debarment, contending that the delay was marginal and attributable to circumstances beyond their control and that no opportunity of hearing had been granted before debarment.

The respondents relied on Clause 2(c) of the conditions of contract and submitted that the petitioners had failed to comply with the tender conditions; they also contended that only a scanned copy of the guarantee had initially been emailed and that the physical copy had not been timely submitted.

Whether the petitioners’ failure to furnish the Performance Bank Guarantee by the extended deadline justified termination of the tender and forfeiture of the earnest money deposit?

Whether debarment for five years under Clause 2(c), without prior notice or an opportunity of hearing, was legally sustainable?

The Court applied the principles of natural justice, particularly the rule that an adverse order of blacklisting or debarment must ordinarily be preceded by notice and a meaningful opportunity to represent.

Clause 2(c) of the FCI conditions authorised termination, forfeiture of earnest money and five-year debarment upon failure to furnish the Performance Guarantee within the stipulated or extended period, but did not provide for any opportunity of hearing before debarment.

The Court held that the contractual clause could not exclude the requirement of natural justice and was unsustainable to the extent that it permitted debarment without prior notice or hearing.

The Court also considered the principle that such coercive consequences must take account of the surrounding circumstances, including whether the default was attributable to the tenderer’s negligence and whether the penalty was proportionate.

It found persuasive the decision in M/s Feedback Infra Pvt. Ltd. v. Union of India & Ors., WP(C) No. 2934/2024, concerning the requirement of prior notice before debarment.

The Court accepted that the Performance Bank Guarantee was technically obtained after the extended deadline, since the extension expired on 19.08.2025 and the bank issued the guarantee on 20.08.2025.

However, the petitioners had created the required fixed deposit on 14.08.2025, five days before the deadline, and the bank had subsequently issued the physical guarantee on 20.08.2025.

These facts indicated that the failure could not be squarely attributed to deliberate negligence by the petitioners.

Although the Court held that the challenge to termination was no longer capable of effective consideration because the contract had ceased to survive, it treated the five-year debarment as a distinct and serious adverse consequence.

Since Clause 2(c) authorised automatic debarment without providing any opportunity to explain the delay, its application in that manner violated natural justice.

The respondents were therefore required to reconsider the debarment and the forfeiture of the earnest money after receiving the petitioners’ representation.

The Court declined to revive or otherwise examine the terminated contract, as it no longer survived for consideration.

However, the petitioners were granted an opportunity to represent against the debarment and the forfeiture of the earnest money deposit.

They were directed to submit their representation within two weeks, and respondents Nos. 2–4 were directed to pass a reasoned and speaking order within four weeks thereafter, confined to the issues of refund of the earnest money and debarment.

The interim stay of debarment was directed to continue until further orders by the respondents.