State instrumentalities may blacklist contractors for breach of Public Distribution System obligations independent of criminal outcomes.

The petitioner was appointed as a Transporting and Handling Agent for door-step delivery of food grains in Kaimur district under an agreement dated 31.08.2016

On 15.09.2017, an FIR (Bhabhua P.S. Case No. 577/2017) was registered alleging that 26 bags of PDS rice were being transported for black marketing in the petitioner’s tractor

Following a show-cause notice dated 10.10.2017 and the petitioner’s reply, the respondent-Corporation cancelled the petitioner’s agreement, blacklisted him for three years, and forfeited his security deposit and bank guarantee via orders dated 23.12.2017 and 29.12.2017

The petitioner challenged these orders, contending that no PDS grain was diverted and no financial loss was caused to the Corporation

1. Whether, in the facts and circumstances of the present case, the respondent-Corporation was justified in invoking Clauses 10.2, 11, and 15.4 of the NIT read with Clause 17 of the agreement for terminating the contract, blacklisting, and forfeiting security?

2. Whether the impugned action suffers from any arbitrariness, perversity, or procedural infirmity warranting interference under Article 226 of the Constitution?

The court applied the contractual provisions of the NIT and the Agreement, specifically Clause 11 (transporter's sole responsibility for safe delivery), Clause 15.4 (termination and blacklisting for breach), and Clause 17 (forfeiture of security for breach)

It relied on the Supreme Court precedents of Patel Engineering Ltd. v. Union of India, establishing that blacklisting is an inherent executive power subject to fairness

Kulja Industries Ltd. v. Chief General Manager, BSNL, which mandates proportionality and natural justice in blacklisting

Regarding judicial review in contractual matters, the court followed Tata Cellular v. Union of India [para. 28] and Michigan Rubber (India) Ltd. v. State of Karnataka [para. 29], which restrict court intervention to instances of patent illegality, irrationality, or mala fides.

The court reasoned that the contractual clauses must be read harmoniously; Clause 10.2 (recovery of loss) does not limit the Corporation’s independent power under Clauses 15.4 and 17 to terminate and blacklist for a breach of integrity

The court found that because the petitioner’s vehicle was specifically named in an FIR involving Clause 7 of the Essential Commodities Act, the Corporation was not required to await a criminal conviction before taking administrative action, as the contract is founded on "confidence, integrity and accountability"

Procedural fairness was satisfied as a show-cause notice was issued and the petitioner’s reply was considered

The court emphasized that in the absence of demonstrated mala fides or procedural impropriety, it cannot substitute its own subjective satisfaction for that of the competent authority

The writ petition was dismissed, and the impugned orders of termination, blacklisting, and forfeiture were upheld. However, the court granted the petitioner liberty to invoke the arbitration clause (Clause 20) for any residual monetary or contractual claims