Simplified Explanation of the Judgment
The Patna High Court recently delivered a significant judgment in CWJC No. 4088 of 2024 and CWJC No. 4208 of 2024, involving two petitioners engaged in coal supply contracts with the Bihar State Mining Corporation Ltd. (BSMCL). These petitioners were blacklisted and had their security deposits forfeited for allegedly violating the terms of their contracts.
The contracts in question required the supply of a specified Annual Contracted Quantity (ACQ) of coal, along with a Monthly Scheduled Quantity (MSQ) set as 1/12th of the ACQ. The authorities contended that the petitioners violated the agreement by not adhering to the monthly quantity limits and by operating beyond the MSQ in certain months.
However, the petitioners argued that coal supply was not consistent throughout the year. In some months, there was no coal delivery, which forced them to temporarily shut down their operations. When coal was supplied in other months, they operated overtime to utilize the backlog, thereby exceeding the MSQ. The key point was that the contracts emphasized the yearly fulfillment of the ACQ and not strict compliance with MSQ on a monthly basis.
The Court had previously ruled on an identical issue in CWJC No. 1114 of 2024 (M/s Bhagwati Coke Industries Pvt. Ltd. vs. State of Bihar), where it had clarified that:
- The penalty provisions applied only to underutilization of the total ACQ, not the MSQ.
- Monthly supply shortfalls were understandable due to dependency on Coal Companies.
- Buyers could not be held liable for exceeding MSQ if they remained within the annual limits.
In this new case, the Court noted that the blacklisting and forfeiture orders were based on the same reasoning previously rejected in the earlier judgment. Moreover, the respondents failed to file a counter affidavit, which reinforced the Court’s view that the petitioners’ arguments stood unchallenged.
As a result, the Court set aside the blacklisting orders and ruled that the contracts must remain valid unless legally terminated as per agreed terms.
Significance or Implication of the Judgment
This ruling offers critical relief and clarity to small and medium enterprises dependent on government coal supply contracts. It underscores that adherence to annual quantity obligations takes precedence over rigid monthly quotas, especially when supply irregularities are not within the supplier’s control.
For government departments and public sector undertakings, the judgment serves as a reminder to act within the contractual framework and avoid punitive measures that are not contractually justified. This ensures fairness in government dealings and upholds the rule of law.
Legal Issue(s) Decided and the Court’s Decision
- Whether exceeding the Monthly Scheduled Quantity (MSQ) while meeting the Annual Contracted Quantity (ACQ) violates the contract:
❖ Court’s Decision: No. Utilization beyond MSQ does not violate the contract if the ACQ is fulfilled annually. - Whether blacklisting and forfeiture can be imposed for exceeding MSQ due to irregular supply:
❖ Court’s Decision: No. Such punitive actions are not contractually sustainable. - Whether petitioners can be faulted for using coal as and when it was available:
❖ Court’s Decision: No. Petitioners acted within the spirit of the contract, considering supply constraints.
Judgments Relied Upon or Cited by Court
- CWJC No. 1114 of 2024, M/s Bhagwati Coke Industries Pvt. Ltd. vs. The State of Bihar and Ors.
Case Title
M/s Pink Enterprises vs. The State of Bihar & Ors.
(with analogous case: M/s Jagdamba Industries vs. The State of Bihar & Ors.)
Case Number
CWJC No. 4088 of 2024
CWJC No. 4208 of 2024
Coram and Names of Judges
Hon’ble The Chief Justice K. Vinod Chandran
Hon’ble Mr. Justice Partha Sarthy
Names of Advocates and who they appeared for
- For Petitioners: Mr. Siddharth Shankar Pandey, Advocate
- For Respondents:
• Mr. Arvind Ujjwal, SC-4
• Mr. Sushil Kumar Mallick, AC to SC-4
• Mrs. Kalpana, Advocate
• Mr. Ajay Bihari Sinha, GA-8 (in CWJC No. 4208/2024)
Link to Judgment
https://www.patnahighcourt.gov.in/ShowPdf/web/viewer.html?file=../../TEMP/69541def-f5c0-44ff-8a3f-a92f213b1647.pdf&search=Blacklisting
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