State Being Principal Has Right To Terminate Contract With Caveat That Its Decision Doesn’t Fall Foul Of Being Arbitrary: Allahabad High Court

The Allahabad High Court observed that the State being the Principal has the right to terminate the contract, with the caveat that its decision does not fall foul of being arbitrary.

The Lucknow Bench observed thus in a Writ Petition in which the dispute emanated in the year 2007 in which the Petitioner was accorded a license in 2005 for distribution of essential commodities through a fair price shop in a village.

A Single Bench of Justice Jaspreet Singh emphasised, “The State is the principal and the licensee is its agent. The State being the principal has the right to terminate the contract, of course, with the caveat that its decision does not fall foul of being arbitrary. However, if a decision is taken by adhering to the principles of natural justice and a view is formed then merely because another view may be possible, the Court in exercise of its power under Article 226 of the Constitution of India will not take a different view, unless it is perverse.”

The Bench enunciated that in such a case where the State is one of the contracting parties, it is implicit that the State must adhere to the provision and clause of the agreement scrupulously; however, that does not rob the State of its power to cancel the agreement.

Advocate Satish Kumar Sharma appeared for the Petitioner while Additional Chief Standing Counsel (ACSC) Rahul Shukla and Advocate Shreyash Agarwal appeared for the Respondents.

Case Background

The Petitioner was accorded a license in November 2005 for distribution of essential commodities through a fair price shop in village Panchayat Dilawarpur, Tahsil Mohammadi, District Kheri. In October 2007, the Sub Divisional Magistrate noticing certain discrepancies regarding the distribution of essential commodities suspended the license of the Petitioner and required him to show cause within a week as to why further proceedings may not be taken against the Petitioner. As per the suspension order cum show cause notice, it was alleged that the Petitioner had lifted the requisite quota of the food and essential commodities for the month of October 2007. However, it was alleged that the appointed supervising officer submitted his report and informed that he had visited the Petitioner’s fair price shop where he was not available nor there were the necessary stocks of the grains and essential commodities for distribution. The matter was enquired through the distribution inspector who confirmed that the Petitioner did not have the necessary stocks for distribution of the grains and the essential commodities for the month of October 2007.

The Sub Divisional Magistrate while taking note of the fact that in pursuance of the show cause cum suspension notice, the Petitioner did not respond nor submitted any evidence or explanation, cancelled his license. The Petitioner preferred an Appeal before the Commissioner, Lucknow Division in terms of Section 28(3) of the Uttar Pradesh Schedule Essential Commodities Distribution Order 2004. The said Appeal was allowed; however, the Magistrate again cancelled his license. He again filed an Appeal but his request was not entertained. He then approached the High Court, which granted him limited protection. Thereafter, the Magistrate passed a fresh Order staying its earlier Order and stopped the supply to the Petitioner and restored the supplies in favour of Anwari. His Appeal was again dismissed and hence, he was before the High Court. The High Court allowed his Writ Petition, setting aside the cancellation order and restoring his license. The Magistrate restored the Petitioner's license and cancelled that of Anwari. The Supreme Court allowed Anwari's Appeal, setting aside the High Court’s Order and remanded the matter for fresh consideration. The matter was remanded back to the High Court.

Reasoning

The High Court in the above context of the case, said, “This could have easily been corroborated by the physical presence of the stock at the shop/go-down and it could also be indicated regarding the distribution of the said stocks to card holders i.e. the beneficiaries. Every time any card holder is given the grains and essential commodities, an endorsement is made on his card. In absence of any clear averments and endorsement on the card and giving no explanation regarding non presence of the stocks or any explanation thereto cannot be said that the documents were not appropriately considered and discarded by the authorities."

The Court elucidated that in absence of any material, it cannot be said that the authorities have taken any new ground for which the Petitioner should have been granted further fresh opportunity to rebut.

“This Court is of the view that adequate opportunity was granted to the petitioner and it cannot be said that there was any violation of principle of natural justice especially when the inquiry is to be held in a summary fashion as held by the Larger Bench in Shankar Prasad (supra). Thus, for the aforesaid reasons, the submissions of the learned counsel for the petitioner as far as it relates to the violation of principle of natural justice cannot be sustained and accordingly it is turned down”, it further remarked.

The Court further added that it cannot be said that the State did not have the authority to terminate the agreement and the agreement which is entered into between the State and the licensee is of a determinable character.

“… the Court in exercise of power under Article 226 is not primarily concerned with the merit of the decision rather it is the decision making process which takes primacy”, it also said.

The Court concluded by noting that more than 17 years have lapsed and, hence, there is no scope to interfere with the Orders passed by the Sub Divisional Magistrate and the Appellate Authority.

Accordingly, the High Court dismissed the Petition.

Cause Title- Mohd. Mustkeem v. State of U.P. Thru Secy. Food U.P. Govt. Civil Sectt. And Ors (Neutral Citation: 2025:AHC-LKO:33301)

Appearance:

Petitioner: Advocates Satish Kumar Sharma, Manjusa, Mohan Singh, and Rupesh Kumar Gupta.

Respondents: ACSC Rahul Shukla, Advocates Shreyash Agarwal, and Nishant Shukla.

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