Delhi HC Directs FCI To Pay Security Agency 14% Service Charge, As Its Sponsorship Pre-Dated MoD’s 10% Rule

The petitioner, a DGR-sponsored security agency, was sponsored to provide security services to FCI on 29 June 2020 and appointed from 1 August 2020 at a service charge of 14%.

The appointment was later extended for a further year.

A Ministry of Defence Office Memorandum dated 13 May 2021 capped service charges at 10%, following which FCI sanctioned the petitioner’s bills at that rate.

The petitioner challenged the reduced rate and sought, among other reliefs, payment of outstanding dues at 14%. It did not press its challenge to the Memorandum.

The Ministry subsequently clarified that the revised rate applied to sponsorships made on or after 13 May 2021, while earlier sponsorships remained subject to the 14% rate.

The Court relied on the Ministry of Defence Office Memorandum dated 9 July 2012, under which the applicable service charge was 14%, and the Office Memorandum dated 13 May 2021, which introduced a 10% rate for relevant later sponsorships.

It also considered the Ministry’s clarification dated 30 July 2021, which preserved the 14% rate for sponsorships made before 13 May 2021 and applied the 10% rate to sponsorships made on or after that date.

The operative principle was that the 2021 rate change did not apply retrospectively to the petitioner’s pre-existing sponsorship.

The petitioner’s sponsorship dated 29 June 2020 preceded the 13 May 2021 Memorandum.

The Ministry of Defence, as the issuing authority, had clarified that the revised rate was prospective and that earlier sponsorships remained governed by the 14% rate under the 2012 Memorandum.

The Court therefore rejected FCI’s argument that the 10% rate applied because the petitioner’s contract had been extended after the 2021 Memorandum; the issuing authority’s clarification addressed applicability by reference to the date of sponsorship.

The petition and pending application were disposed of accordingly.