Invocation of bank guarantee for breach of Integrity Pact must be preceded by reasons and compliance with principles of natural justice.

The Appellants have been supplying equipment to the Indian Army since 2007

In 2012, Respondent No. 1 issued a tender for 1,820 Skid Steer Loaders, requiring bidders to sign a Pre-Contract Integrity Pact (PCIP) and furnish an Integrity Pact Bank Guarantee (IPBG) of ₹3 crores as security against corruption

Although provisionally qualified in 2015, the Appellants' vigilance clearance was withheld in 2020 due to two CBI FIRs involving an individual purportedly associated with Appellant No. 1

On 20.07.2020, the Respondent sought to invoke the bank guarantee for alleged PCIP violations without issuing a Show Cause Notice

The Appellants challenged this via a writ petition, which was dismissed by a learned Single Judge on 18.07.2020 on the grounds that the Appellants had failed to challenge a similar invocation in 2014

The Appellants subsequently filed this Letters Patent Appeal.

Whether the invocation of the Integrity Pact Bank Guarantee without prior issuance of a Show Cause Notice or communication of reasons violated the principles of natural justice

Whether the learned Single Judge erred in dismissing the writ petition solely based on the Appellants' non-challenge of a previous 2014 invocation

The Court primarily relied upon the constitutional principles of natural justice, specifically the right to a fair hearing (audi alteram partem) and the requirement for administrative authorities to communicate reasons for adverse actions

It examined the procedural requirements under the Pre-Contract Integrity Pact (PCIP) which governs the relationship between the bidder and the Government in defense tenders

The Court noted the Appellants' contention that the 2020 invocation was a distinct instance from the 2014 matter and required an independent opportunity for the Appellants to explain why the CBI FIRs did not constitute a breach of the PCIP

Upon questioning the Respondent’s counsel, the Court found that no reasons for invoking the PCIP were communicated to the Appellants prior to the action, nor were reasons stated in the letter to the Bank

The Court observed that the lack of a Show Cause Notice meant the merits of the alleged breach had not been properly examined by the Respondent or the Single Judge

Given these procedural gaps, and with the consent of the Respondent to reconsider the matter, the Court determined that a de novo consideration was necessary

The Court held that the matter should be heard de novo without being influenced by the previous orders

The appeal was disposed of by directing both parties to appear before the Single Judge on 13.03.2026, while clarifying that no opinion was expressed on the factual merits of the alleged PCIP violation