1 2025:CGHC:23097 NAFR Reserved for orders on : 19.03.2025 Order passed on 11.06.2025 WPC No. 1000 of 2024 1 - M/s Arvind Industries A Proprietorship Concern, Through Its Proprietor Itesh Jain, S/o Shri D. K. Jain, Aged About 43 Years, Having Its Office At Stephen House, Room No 5/c, 3rd Floor, 4 Hemanta Basusarani, Kolkata, 700001 ... Petitioner(s) versus 1 - Union Of India Through Its Secretary, Ministry Of Railways, Rail Bhawan, New Delhi. 2 - South East Central Railway Through Its Principal Chief Material Manager, South East Central Railway, New General Manager Building, Ground Floor, Bilapsur, Chhattisgarh, 495004 3 - Deputy Chief Material Manager Iv/ Hq South East Central Railway, New General Railway, New General Manager Building, Ground Floor, Bilaspur, Chhattisgarh, 495004 ... Respondent(s) (Cause Title is taken from CIS System) For Petitioner : Mr. Anand Dadariya, Advocate For Respondents : Mr. Ramakant Mishra, Dy. Solicitor General along with Mr. Rishabh Dev Singh, Advocate Hon’ble Mr. Justice Amitendra Kishore Prasad C.A.V. Order 1. The petitioner, a proprietorship concern operating under the name of M/s Arvind Industries, through its proprietor Itesh Jain from Stephen House, Kolkata, is an RDSO-approved vendor eligible to Digitally signed by SHAYNA KADRI 2 participate in tenders issued by South East Central Railway. In response to a tender for the manufacture and supply of metal liners, the bid of petitioner was accepted via a Letter of Acceptance dated 17.01.2023, followed by the execution of a Rate Contract on 20.02.2023. Pursuant to this, three purchase orders were issued for varying quantities of metal liners on 25.05.2023, 24.07.2023, and 15.09.2023, respectively. The petitioner completed the supply under the first purchase order on time. However, due to the relatively small quantities in the second and third orders and resulting logistical and financial burdens, the petitioner requested a time extension to allow for combined shipment. Despite willingness to supply at the agreed lower rates, the respondent authorities abruptly cancelled the orders invoking the Fall Clause. Subsequently, on 03.01.2024, without issuing any show-cause notice or affording an opportunity to be heard, the respondents circulated a letter to all railway zones labeling the performance of petitioner as “bad and unsatisfactory.” This action, taken without adherence to principles of natural justice, is arbitrary, violative of Article 14 of the Constitution of India, and contrary to established judicial precedents requiring procedural fairness even in administrative actions with civil consequences. The present petition is thus filed to seek redressal against the impugned actions. Through this writ petition, the petitioner seeks the following reliefs : - “10.1 That, this Hon'ble Court may kindly be pleased to call for the records pertaining to the instant writ petition; 3 10.2 That, the Hon'ble Court may kindly be pleased to issue appropriate writ/ writs, quashing the impugned letter/communication dt. 03.01.2024 (ANNEXURE-P/1)_and declare the same being arbitrary, illegal, irrational, violative of principles of natural justice, and violative of the fundamental rights enshrined under the Constitution of India.; 10.3 That, the Hon'ble Court may kindly be pleased to grant any other relief, including the cost of this petition, as it appears to be fit and appropriate to this Hon'ble Court.” 2. The brief facts of the case are that the petitioner is a proprietorship firm operating from its office located at Stephen House, Room No. 51C, 3rd floor, 4 Hemanta Basu Sarani, Kolkata 700001. It is registered as a Micro, Small, and Medium Enterprise (MSME) and has obtained the Udyam Registration Certificate issued by the Ministry of Micro Small and Medium Enterprises. This registration categorizes the petitioner as an MSME unit, which entitles it to certain benefits and privileges under the MSME framework. The petitioner firm has been approved by the Research Designs and Standards Organisation (RDSO), which is the technical advisor to the Indian Railways. For over twenty years, the petitioner has been engaged in the manufacturing, trading, and captive supply of railway track fittings, fastening components, and other railway safety items to Indian Railways. This approval by RDSO qualifies the petitioner to participate in tenders floated by the respondent, South East Central Railway, for 4 supply of railway materials. On 01.12.2022, the respondent authorities floated a tender under the E-Procurement System inviting bids for the manufacture and supply of Metal Liners as per RDSO’s drawing number T-8748 with alteration-1, with a required quantity of 3,000,000 units. The petitioner firm submitted its bid for this tender and was found to be successful. The bid was accepted by the respondent. Following the acceptance of the bid of petitioner, the respondent issued a letter of acceptance dated 17.01.2023. Subsequently, a rate contract (L1 Development order) numbered 5/06225029/23/RC/2/093 was executed on 20.02.2023 for the manufacture and supply of 600,000 Metal Liners as per the specified RDSO drawing, with a stipulated delivery timeline commencing within 45 days from the contract issuance and to be completed within the next 45 days. As part of the contractual obligations, the petitioner furnished a Bank Guarantee dated 01.02.2023 for Rs. 4,71,742/-, valid until 31.07.2023, which was subsequently renewed. The Bank Guarantee was a performance security as required by the contract terms. To initiate supply under the rate contract, the petitioner sent a letter on 27.02.2023 requesting the Deputy Chief Material Manager (Dy. C.M.M.) to issue a formal supply order. In response, the respondent issued the first purchase order (Development) numbered 06235162200999 on 25.05.2023, ordering 2,98,618 Metal Liners with a delivery deadline of 23.08.2023. This purchase order was formally communicated. The purchase order, however, did not specify the place of inspection, which is mandatory as per RDSO 5 guidelines. The petitioner promptly wrote to the respondent on 26.05.2023 to include the place of inspection to enable correct calculation of the delivery period. Subsequently, on 13.06.2023, the respondent issued a letter requesting the extension of the Bank Guarantee validity until 31.12.2023. The petitioner complied by extending the guarantee until 31.10.2023. On 07.09.2023, the respondent issued a letter amending the place of inspection and extending the delivery period for the first purchase order to 31.10.2023. The petitioner offered the material for inspection to RITES (Rail India Technical and Economic Service) on 12.08.2023. After inspection, RITES issued an inspection certificate on 16.08.2023. The petitioner completed the dispatch of the material as per the first purchase order by 24.08.2023, thereby fulfilling its contractual obligations under this order, which was then closed. Subsequently, the respondent issued a second purchase order numbered 06235296201675 dated 24.07.2023, for 15,000 Metal Liners with a delivery deadline of 22.10.2023. Similar to the first purchase order, the second purchase order did not mention the place of inspection. The petitioner wrote to the respondent on 29.08.2023 requesting an amendment to include the place of inspection, consistent with the earlier amendment. The respondent acceded and issued an amendment letter on 07.09.2023. The respondent then issued a third purchase order numbered 06235688202156 dated 15.09.2023 for 83,348 Metal Liners with a delivery deadline of 14.12.2023. Considering the small and uneconomical quantity in the second purchase order, 6 the petitioner requested the respondent on 23.09.2023 to combine the delivery schedule of the second and third orders to 14.12.2023, allowing transportation of both orders together in a single truckload, thereby optimizing costs. The petitioner offered the entire material for inspection on 23.09.2023. On 30.11.2023, the respondent issued a notice invoking the “fall clause,” which requires suppliers to match the lowest price offered to any other buyer, to which the petitioner replied on 02.12.2023, requesting withdrawal of the fall clause invocation as the material had already been manufactured and offered for inspection. The respondent again issued a formal notice dated 21.12.2023 to supply the material against the second and third purchase orders on a fall clause basis. Despite this, considering the long-standing relationship, the petitioner agreed to supply the material and requested an extension of the delivery period by 60 days, communicated by letter dated 26.12.2023. Instead of considering the willingness of petitioner to supply the material and the requested extension, the respondent cancelled both the second and third purchase orders on 27.12.2023 without imposing any financial penalties (as they were development orders). This cancellation caused significant financial loss to the petitioner due to investments in labor, raw materials, and other costs related to manufacturing the material. Being an MSME with limited financial capacity and dependent solely on Indian Railways as a buyer, the petitioner claims that this action would likely lead to commercial ruin. Despite the willingness of petitioner to supply the Metal 7 Liners under the lower rate terms, the respondent invoked the fall clause and abruptly cancelled the orders without providing any show-cause notice. On 03.01.2024, the respondent sent a letter to all Principal Chief Materials Managers (PCMM) across all railway zones and divisions stating that the petitioner firm had shown “bad and unsatisfactory performance.” 3. Learned counsel for the petitioner submits that the impugned communication (Annexure P/1), which alleges poor and unsatisfactory performance against the petitioner firm, is fundamentally illegal, arbitrary, and in direct violation of the principles of natural justice, thereby warranting quashing. The issuance of such communication without providing any prior notice or opportunity of hearing to the petitioner to respond, constitutes a flagrant breach of natural justice and is thus vitiated by arbitrariness, infringing Article 14 of the Constitution of India. It is emphasized that the parties are bound strictly by the terms of the contract, and no provision therein empowers the respondent authorities to issue such a detrimental letter to all Principal Chief Materials Managers across various railway zones and divisions. Given that the petitioner firm, a Micro, Small, and Medium Enterprise (MSME), is entirely dependent on the railway contracts for its commercial existence, the impugned order threatens not only its commercial viability but risks its very survival, amounting to a civil death of the concern. Furthermore, the respondent authorities lacked jurisdiction and authority under the contract to issue such a communication, rendering it void and unauthorized. 8 Learned counsel for the petitioner also contends that the impugned letter is actuated by malafide intentions and represents a colorable exercise of power, issued in a casual and mechanical manner without due consideration. Despite the willingness of petitioner to fulfill contractual obligations and requests to extend delivery periods, the respondent unilaterally cancelled the purchase orders and rate contract without issuing any show-cause notice, thereby causing irreparable prejudice. Judicial scrutiny of such administrative actions is not only permissible but necessary when the decision-making process is arbitrary, illegal, irrational, or discriminatory. Therefore, the impugned order is unsustainable, arbitrary, and violative of Articles 14, 19, and 21 of the Constitution, and the Hon’ble Court is urged to intervene and set aside the same in the interest of justice and fairness. The respondents have failed to produce any show-cause notice or any other form of notice to demonstrate that the petitioner was afforded an opportunity of hearing before the impugned order was passed. This omission is grave and renders the impugned order unsustainable in law, as the right to a fair hearing is a cornerstone of civilized jurisprudence and a fundamental principle embedded in natural justice. Further, the petitioner, in a gesture of goodwill and in light of long-standing relations, agreed to supply the material under protest and requested a re-fixation of the delivery period to 60 days by letter dated 26.12.2023. Despite the willingness of petitioner and communication dated 27.12.2023 indicating readiness to supply the materials, the respondents 9 arbitrarily and unilaterally cancelled the purchase orders without any justifiable cause. It is emphasizes that the respondents issued the impugned letter dated 03.01.2024 to all Principal Chief Materials Officers across various zones and divisions of the Railways, without issuing any show-cause notice and contrary to the letter of Railway Board dated 25.06.2018. Notably, the said letter does not authorize issuance of such communications en masse to all zones and divisions, especially in respect of non- RDSO controlled items. He relied upon the jugdement of Hon’ble Supreme Court in the matter of Rattan Lal Sharma vs. Managing Committee, Dr. Hari Ram (Co-Education) Higher Secondary School, reported in (1993) 4 SCC 10 and in the matter of UMC Technologies Pvt. Ltd. vs. Food Corporation of India and Another, reported in (2021) 2 SCC 551, learned counsel for petitioner underscores the binding applicability of natural justice principles to administrative actions with civil consequences, including the necessity of a clear, specific, and unambiguous show-cause notice prior to taking any adverse action, especially blacklisting or similar stigmatizing measures. 4. On the other hand, learned counsel for the respondents submits that the respondent had floated a tender on 04.11.2022 (Tender No. 06225029) inviting bids for the manufacture and supply of Metal Liners, with a total quantity of 30,00,000 nos. The petitioner participated in the tender process and was declared successful. Subsequently, a letter of acceptance was issued in favor of the petitioner on 20.02.2023, thereby formalizing the contract between 10 the parties. In pursuance of the said contract, the respondent issued multiple purchase orders to the petitioner for supply of Metal Liners as per RDSO’s Drawing No. T-8748. The first purchase order dated 25.05.2023 was for the supply of 2,98,616 nos. of Metal Liners. Subsequently, the second purchase order dated 24.07.2023 was for 15,000 nos., and the third purchase order dated 15.09.2023 was for 83,348 nos. These orders were in furtherance of the original contract. On 30.11.2023, the respondent issued a letter to the petitioner requesting acceptance of a lower rate under the Fall Clause applicable to the contract. The letter referred to the lower rates established pursuant to Supply Orders issued by Eastern Railway, which were Rs. 21.48 + GST @ 18% (total Rs. 25.3464 per unit). This rate was applicable due to the placement of lower term contracts for the same item by Eastern Railway. The letter clearly stated that the petitioner was requested to accept the revised all-inclusive rate as per the Fall Clause under the existing Rate Contract, applicable to both the mentioned supply orders and the balance quantity for future supply orders within the contract validity (till 19.02.2024). The petitioner responded by letter dated 02.12.2023, expressing unwillingness to accept the revised lower rate, citing concerns over freight charges, unloading, handling charges, travel costs, payment terms, and PVC downturn. The petitioner requested the respondent to withdraw the letter imposing the lower rate or cancel the supply orders and contract without financial repercussions which is evident from Annexure R/6. The 11 respondent, through a letter dated 21.12.2023, reminded the petitioner that by accepting the Rate Contract dated 20.02.2023, they had agreed to the Fall Clause as a binding term. The respondent reiterated that non-acceptance of the lower rate constituted a violation of the contract terms. It was further clarified that the unloading charges issue would be addressed through a modification agreement reflecting that unloading would be carried out by the own labor of Railway at their cost. The petitioner was urged to supply the material at the lower rate, failing which action, including cancellation of the contract, would be initiated. It is respectfully submitted that the petitioner had expressly agreed to the Fall Clause at the time of entering into the contract. The Fall Clause mandated that if the contractor sold or offered to sell identical stores at a lower price to any other organization, including any Railway Zone, the same lower price must be offered under the contract. The contract further required the contractor to certify that no lower prices were being offered elsewhere. As the petitioner failed to accept the revised lower rates within the stipulated time, the respondent was compelled to cancel the Rate Contract and associated purchase orders on 27.12.2023. It is submitted that the cancellation was without financial liability, as the contract was developmental in nature. The subsequent letter of petitioner dated 26.12.2023 and email dated 29.12.2023 purportedly accepting the lower rate came only after the cancellation and is therefore legally ineffective. The respondent also issued adverse performance notices to the petitioner and 12 informed various zonal railways about the poor performance of the petitioner mentioning that “Failure by RDSO approved sources: The convenor of the TC/ Tender Accepting Authority, in the concerned Railway unit, shall inform RDSO about vendor's non participation in tender(s), non-adherence to contractual delivery period, unsatisfactory quality performance (including warranty failures) and non-compliance to warranty obligation for appropriate action. Such references made by Railway Units to RDSO should be acknowledged by RDSO”. As per Railway Board instructions and letter of RDSO dated 09.02.2022, the Metal Liner item has been decontrolled and eligible vendors are to be assessed strictly on performance criteria. Earlier Metal liner was controlled item of RDSO but from 09.02.2022 onwards it has been decontrolled by RDSO and to be purchased from all eligible sources as per eligibility criteria mentioned in the RDSO letter. So a letter of bad performance can be sent to zonal railways. Further, as per IRS Clause 0702(b), the purchaser has the right to record adverse performance, cancel contracts, and forfeit security deposits, which the respondent has validly exercised. The respondent reiterates that all actions, including price adjustment under the Fall Clause, issuance of purchase orders, and cancellation of the contract, were strictly in accordance with the terms of the contract and the applicable Railway Board rules. The petitioner has the statutory remedy of arbitration as per Clause 2900 of the Indian Railways Standard Conditions of Contract, 2022. In view of the above, it is humbly submitted that the 13 contentions of learned counsel for petitioner are without merit, and the present petition deserves to be dismissed. 5. I have heard the learned counsel for the parties at length and carefully perused the documents placed on record with utmost circumspection. 6. The petitioner, a proprietorship concern and RDSO-approved vendor, challenges the cancellation of the second and third purchase orders issued by the respondent authorities and the subsequent communication dated 03.01.2024 declaring the performance of petitioner as “bad and unsatisfactory” sent to all railway zones. The petitioner contends that such communication was issued arbitrarily, without affording any opportunity to be heard, and violates the principles of natural justice and Article 14 of the Constitution of India. 7. It is undisputed that the petitioner participated in a tender floated by the respondent on 01.12.2022 for supply of Metal Liners, and was declared successful. A Rate Contract was executed on 20.02.2023, incorporating a “Fall Clause” obliging the petitioner to supply the goods at prices not exceeding the lowest price offered elsewhere. Three purchase orders were issued pursuant to this contract. The petitioner complied fully with the first purchase order. However, the dispute arose over the second and third orders, where the petitioner sought an extension of delivery timelines to consolidate shipments for logistic and economic reasons. Despite willingness to supply at the agreed lower rate 14 under the Fall Clause, the respondents cancelled the orders invoking the Fall Clause and subsequently communicated the performance of petitioner as “bad and unsatisfactory” without issuing a show-cause notice. 8. The issue before this Court for consideration is whether the respondents were justified in invoking the “Fall Clause” and cancelling the second and third purchase orders? and Whether the issuance of the letter dated 03.01.2024 labeling performance of petitioner as “bad and unsatisfactory” without prior notice or hearing violates principles of natural justice under Article 14 of the Constitution of India. 9. The contract clearly incorporated the Fall Clause, binding the petitioner to supply at the lowest price offered elsewhere. The petitioner was duly informed of the invocation of the Fall Clause and requested to accept the revised lower price. Despite willingness to supply later, initial refusal to accept the lower price and withdrawal of the order stating that “since the contents of your letter is not acceptable to us, have withdrawn our call and if your above letter is not withdrawn within 5 days of receipt of our letter we are sorry we will not be able to supply the materials and request to kindly cancel the above orders and RC without any financial repercussion on either side.” led the respondent to cancel the orders. The cancellation was without financial repercussion as these were development orders. The actions of respondent conform to the contract terms and established railway procedures. The petitioner cannot renege a contractual term 15 which was accepted and then claim invalidity of such invocation. The petitioner claims the impugned letter was issued without issuing a show-cause notice, violating natural justice. However, from the record, the petitioner had itself, in its letter dated 02.12.2023, effectively withdrawn from the contract if the Fall Clause was insisted upon. Further, the respondents had communicated multiple notices and reminders, affording ample opportunity for compliance or representation. The cancellation letter and subsequent communication reflect a reasoned consequence of petitioner’s own withdrawal and non-compliance. No penalty or blacklisting was imposed, only factual adverse performance information shared with other zones, as per Railway Board guidelines. Such communication, in light of voluntary withdrawal of petitioner and failure to perform, does not attract the rigors of a formal adjudicatory process or requires a show-cause notice akin to penalty proceedings. The Hon’ble Supreme Court in the cases cited by the petitioner primarily deals with punitive or debarment actions, which are distinguishable from cancellation and adverse reporting without penalty. Principles of natural justice is not an absolute bar where contractual terms are clear and voluntary withdrawal by the party has been made known. The action on the part of respondents is supported by Railway Board instructions dated 09.02.2022 and RDSO guidelines regarding performance reporting. These guidelines allow the purchaser to inform other zones about non-performance to safeguard overall procurement integrity. Since the item to be supplied by petitioner 16 is now decontrolled and competitive supply is expected, the communication does not amount to blacklisting but reflects administrative transparency. Respondents acted within contractual and statutory powers without arbitrariness. The adverse performance letter communicated to other zones was a factual administrative step, not an order imposing penalty or blacklisting. The petitioner was given sufficient opportunity and was not denied natural justice in the context of the contract and circumstances. In contractual matters where there lies an agreement between the parties, the term of contract are known by the parties, there were communication between the parties, in such a situation, the principle of natural justice will not apply. In the present matter, cancellation of contract was informed prior and the petitioner firm was also willing to withdraw the contract, in the said situation, information of bad performance itself would not lead to violation of principles of natural justice. The plea of petitioner based on violation of natural justice principles and arbitrariness is unsustainable. The contract and railway administrative framework justify the actions on the part of respondents. No interference under Article 226 is warranted. 10. Accordingly, this writ petition is dismissed. The impugned communication dated 03.01.2024 is held to be valid and not violative of natural justice. Sd/- (Amitendra Kishore Prasad) Shayna Judge