In Presence of Dispute Resolution Clause, Parties Must Exhaust Contractual Remedies Before Collector Prior to Encashing Bank Guarantees

The petitioner, a rice mill owner, entered into a custom milling agreement dated 15.12.2023 with the District Marketing Officer (Respondent No. 6) for the procurement year 2023–2024

The petitioner delivered 9631.24 MT of rice but claimed that the respondent authorities failed to accept the remaining balance of 7273.27 MT despite repeated requests and extensions of time till 30.06.2025

On 28.01.2026, Respondent No. 6 issued a letter to Punjab National Bank (Respondent No. 7) seeking to invoke the bank guarantee provided by the petitioner under the milling agreement

The petitioner challenged this invocation as arbitrary and sought a direction for the acceptance of the remaining rice delivery

1. Whether the petitioner is entitled to an order restraining the encashment of the bank guarantee pending the resolution of the dispute through the mechanism provided in the milling agreement?

2. Whether the court should exercise its writ jurisdiction when an alternative dispute resolution mechanism (Collector's adjudication and Arbitration) is available under the contract?

The Court primarily applied the principle of adherence to alternative dispute resolution clauses within government contracts, specifically Clause 14.1 and Clause 15.1 of the milling agreement

Clause 14.1 mandates that any dispute arising between the parties must first be adjudicated by the concerned Collector

Clause 15.1 provides a further remedy of Arbitration for disputes arising from the Collector’s order

The Court also applied the principle of providing interim protection against coercive actions (encashment of bank guarantee) during the pendency of a statutory or contractual dispute resolution process

The Court noted that the milling agreement contains a specific hierarchy for dispute resolution. Per Clause 14.1, the Collector is the designated authority to resolve disputes between the miller and the state marketing federation

The petitioner expressed a willingness to approach the Collector provided the bank guarantee was not encashed in the interim

Since the respondents did not object to the petitioner seeking redressal through the Collector, the Court found it appropriate to divert the matter to the prescribed contractual forum rather than adjudicating the merits of the rice delivery delay under Article 226

The Court reasoned that protecting the petitioner from the "coercive step" of bank guarantee invocation was necessary to ensure the efficacy of the remedy under Clause 14.1

The Court held that "no coercive steps shall be taken... with regard to encashment of the bank guarantee" until the Collector renders a decision

The Court ordered the Collector to decide the grievance within 30 days of being approached

The Court further clarified that if the petitioner remains aggrieved by the Collector's decision, they may invoke the arbitration remedy under Clause 15.1 of the agreement