M/S Jagdamba Sales Corporation vs. State (Gnct Of Delhi ) & Ors

Facts

The appellant, M/s Jagdamba Sales Corporation, entered into a rate contract with the Central Jail Factory, Tihar, New Delhi, for lifting mustard de-Oiled cake (Khal) and empty gunny bags. The appellant was the highest bidder and submitted a performance security of Rs. 26,31,250/-. The agreement required the appellant to lift 5000 quintals of mustard de-Oiled cake by June 30, 2017. The appellant only lifted approximately 1515.30 quintals by June 22, 2017, despite an extension. Consequently, the respondents blacklisted the appellant. After a prior writ petition led to the blacklisting order being set aside and remanded, a fresh order was passed on December 4, 2018, debarring the appellant from business for three years from December 27, 2017, and forfeiting the security deposit. The appellant's writ petition challenging this order was dismissed by the learned Single Judge, leading to the present Letter Patents Appeal.

Held

The Court held that the appellant's contentions regarding demonetization and GST were unpersuasive. The authority noted that the appellant's failure to lift the material continued for several months after demonetization, indicating irresponsible conduct and violation of contract terms. The respondents suffered losses due to storage issues and product degradation. The Court found that the respondents followed the rules of natural justice, providing the appellant with opportunities to be heard and issuing show cause notices. The Court also found that the terms of the auction notice clearly permitted the imposition of penalties, forfeiture of security deposit, and debarment from future business activities in case of default. The Court concluded that the punitive action taken was not disproportionate, considering the appellant's repeated defaults and the losses incurred by the Prison Department. The learned Single Judge's dismissal of the writ petition was found to be without infirmity, perversity, or illegality, and the appeal was dismissed.

Key Issues

1. Whether the appellant's failure to lift the contracted quantity of mustard de-Oiled cake within the stipulated period and extended period was justified due to demonetization and the imposition of GST, thereby rendering the blacklisting and forfeiture of security disproportionate? Petitioner's arguments: The appellant contended that the business standstill caused by demonetization prevented them from lifting the entire quantity. They also argued that the penalty, including forfeiture of security and blacklisting, was disproportionate. The appellant relied on the principles laid down in *Kulja Industries Ltd. Vs. Chief General Manager, BSNL* for determining the quantum of punishment. Respondents' arguments: The respondents argued that the appellant failed to lift the material even months after demonetization. This failure resulted in the jail premises being used for storage, loss of value due to drying, and potential spoilage. They asserted that natural justice was followed, and the appellant was given opportunities to be heard. The respondents also submitted that commercial difficulties like GST imposition do not excuse contractual breaches.