Simplified Explanation of the Judgment

In a significant ruling, the Patna High Court has quashed the blacklisting of a transporter by the Bihar State Food and Civil Supplies Corporation (BSFC) due to procedural lapses and lack of proper evaluation of the transporter’s explanation. The case involved a writ petition filed by a transporter whose five-year blacklisting, termination of contract, forfeiture of security deposit, and invocation of bank guarantee were challenged.

The primary issue the Court dealt with was whether the blacklisting was legally valid, especially when the transporter was not directly accused of wrongdoing and his explanation was not duly considered by the authorities.

The petitioner was engaged with the BSFC for transporting food grains. An FIR was registered against the driver of the vehicle used by the petitioner, alleging black-marketing of public distribution food grains. Relying on this, the District Transport Committee blacklisted the petitioner for five years, terminated his contract, forfeited his security, and encashed the bank guarantee.

During the hearing, the High Court observed that the agreement between the parties contained an arbitration clause. Therefore, the Court allowed the petitioner to challenge the contract termination, forfeiture, and bank guarantee invocation in arbitration.

However, the issue of blacklisting was not covered under arbitration. Hence, the Court examined whether the blacklisting decision was made after proper application of mind. The Court noted that the petitioner had submitted a detailed explanation, clarifying that:

• The incident involved only the driver;
• No conspiracy or involvement was found against the petitioner;
• The petitioner had voluntarily agreed to deduct a large sum from his transport bill to cover the loss;
• A significant quantity of looted rice was recovered.

Despite this, the Committee did not refer to the petitioner’s explanation while passing the order. The High Court emphasized that blacklisting causes “civil death” of a business entity and must be based on actual findings, not mere presumptions.

Citing the Supreme Court’s decision in Kulja Industries Ltd. vs. BSNL (2014), the Court reaffirmed that blacklisting must be proportional, justified, and preceded by fair hearing. The High Court ruled that since the petitioner was not made an accused, and no connivance was proven, the use of clause 4(f) of the agreement to blacklist him was unreasonable.

The Court thus set aside the blacklisting order, allowing the Corporation to take fresh action only if warranted by direct evidence of the petitioner’s involvement.

Significance or Implication of the Judgment

This judgment is crucial for contractors, suppliers, and transporters engaged with government entities. It reinforces the principle that administrative actions like blacklisting must follow due process, especially when they can severely affect a person’s right to conduct business. Government departments are reminded that punitive measures based on presumptions, without evaluating explanations or factual involvement, are unsustainable in law.

Legal Issue(s) Decided and the Court’s Decision

• Issue: Was the petitioner’s blacklisting for five years legally valid?
  • Decision: No. The blacklisting was set aside due to:
    • Failure to consider the petitioner’s written explanation;
    • No direct involvement of the petitioner in the alleged offense;
    • Use of clause 4(f) of the agreement without proportional justification.
• Issue: Could the termination, forfeiture of security deposit, and bank guarantee be challenged?
  • Decision: Yes, but only through arbitration, as per the contract terms.

Judgments Referred by Parties

• Deepak Kumar vs. State of Bihar, 2019(2) BLJ 479

Judgments Relied Upon or Cited by Court

• M/s Kulja Industries Ltd. vs. Chief General Manager, BSNL, AIR 2014 SC 9
• Erusian Equipment & Chemical Ltd. vs. State of West Bengal, (1975) 1 SCC 70

Case Title
Piyush Kumar vs. The Bihar State Food and Civil Supply Corporation & Others

Case Number
Civil Writ Jurisdiction Case No. 12554 of 2019

Citation(s)
2020 (1) PLJR 10

Coram and Names of Judges

• Hon’ble Mr. Justice Rajeev Ranjan Prasad

Names of Advocates and who they appeared for

• Mr. Sandeep Kumar, Mr. Sanjeet Kumar, Mr. Rohit Raj, Advocates (for the Petitioner)
• Mr. Anjani Kumar, Sr. Advocate and Mr. Shailendra Kumar Singh (for BSFC)
• Mr. Alok Ranjan, AC to AAG-5 (for the State)

Link to Judgment
https://patnahighcourt.gov.in/viewjudgment/MTUjMTI1NTQjMjAxOSMxI04=-kw–am1–EpA61hx8=

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