The General Manager (R), Food Corporation Of INDIA, Regional Office (Nagaland) And Anr vs. M/S B.K. Enterprises

Held

The High Court held that the Appellant Corporation had the right to recover losses from any security deposit made by the Contractor against other contracts by invoking the set-off clause (Condition XIV of the Model Tender Form). Therefore, the Court disagreed with the learned Single Judge's finding that the invocation of Bank Guarantees could only be exercised in connection with the specific work for which the Bank Guarantee was submitted. The Court also agreed with the Appellant's contention that when the basic order is not interfered with, consequential orders cannot be set aside. Since the learned Single Judge had not interfered with the basic orders/letters regarding the recovery of losses, the consequential communications to the bank for invoking Bank Guarantees could not be set aside. The Court set aside the impugned judgment and order of the learned Single Judge in so far as it directed the FCI to refund the Bank Guarantees. However, the Court directed that before recovering the amount of Rs. 40,27,369/-, the Petitioner should be given an opportunity of being heard on the quantum, and recovery should only be made after serving due notice, noting that the letters to the bank were not addressed to the Petitioner.

Facts

The Food Corporation of India (FCI) issued a tender for a road transport contractor, which M/s B.K. Enterprises (the Petitioner) won. The Petitioner deposited 50% of the security deposit (Rs. 30,61,703/-). Subsequently, the Petitioner sought withdrawal from the contract. FCI terminated the tender and imposed a five-year debarment penalty. The Petitioner's grievance against these actions was rejected by the Grievance Redressal Committee (GRC), a decision upheld by the High Court and the Supreme Court. Following the GRC's findings, FCI issued communications to recover losses amounting to Rs. 40,27,369/- and sought to invoke Bank Guarantees. The Petitioner challenged these recovery actions and the invocation of Bank Guarantees in a writ petition. The learned Single Judge partly allowed the petition, setting aside the letters to the bank for invoking Bank Guarantees, citing violation of natural justice and lack of proper calculation, and directed refund of certain Bank Guarantees.

Key Issues

1. Whether the learned Single Judge erred in holding that the invocation of Bank Guarantees by FCI was done without giving an opportunity to the Petitioner, and that violation of principles of natural justice was a ground for setting aside the invocation. - Petitioner's Argument: The Petitioner argued that the invocation of Bank Guarantees was unsustainable due to a violation of the principles of natural justice, as no notice or show-cause was issued before the recovery was made. They also contended that the calculation of the loss amount was not properly substantiated. - Revenue/State's Argument: The Appellant (FCI) argued that the learned Single Judge wrongly held that the invocation of Bank Guarantees was done without giving an opportunity to the Petitioner. They contended that violation of principles of natural justice was not a ground taken in the writ petition. Furthermore, they argued that the impugned communications to the bank were consequential to basic orders that were not challenged, and therefore, the consequential orders could not be set aside. They relied on the Supreme Court decision in Deokar's Distillery.