Judgment : 1. Petitioner was a transport contractor with the A.P.State Civil Supplies Corporation Limited (1st respondent). This writ petition is instituted assailing orders in Proceeding No.PDS/2/ Movt.FG.5(12)/1924/2008-09, dated 10.02.2009. By the aforesaid order, the respondent corporation terminated the contract of transportation, forfeited the pending bills, security deposit and bank guarantee and black-listed the petitioner from participating in any future tenders of the 1st respondent corporation. 2. On 17.10.2008, 300 bags of food grains consisting of 14.805 metric tons of rice were loaded into the motor transport vehicle bearing registration No.AP-02-T-0546 belonging to the petitioner in F.C.I. Godown, Jangalpally and stock was intended to be unloaded at MSL point of Tanakal. The said lorry did not reach MSL point upto 10.30 p.m., on 18.10.2008. Complaint was lodged on 18.10.2008 complaining against the petitioner and driver of the Truck. The complaint was registered as Crime No.85 of 2008 in P.S. Rapthadu. By order dated 20.10.2008, the contract of the petitioner was suspended by the 2nd respondent on the allegation that PDS stock/distribution system stocks were diverted. The empty Truck was traced in the premises of petrol bunk, near Rapthadu village. On 16.11.2008, the accused (driver, cleaner and the person who purchased the stock) were arrested and stocks were kept in court custody. The Criminal Court ordered to release the stock. Accordingly, stock was released and stocks were delivered to the MSL Point and were distributed to the beneficiaries. On 28.06.2009 Police filed charge sheet. Petitioner was not implicated and no allegations are made against the petitioner. 3. Challenging the orders of suspension of transport contract dated 20.10.2008, petitioner filed W.P.No.23972 of 2008. The said writ petition is disposed by this Court by order dated 04.11.2008 leaving it open to the respondents to proceed with the enquiry and pass appropriate orders following due process of law as expeditiously as possible preferably within a period of six weeks from the date of receipt of the order. This Court further directed the respondents not to award the work in question to any third party. 4. By order dated 26.11.2008, explanation was called from the petitioner alleging that the contractor is also responsible for the acts of the driver of his vehicle, in which stocks were loaded for transportation. Explanation was called to show cause as to why transport contract should not be terminated as per clause No.3(iii) and 8(iv) of the agreement. 4. By order dated 26.11.2008, explanation was called from the petitioner alleging that the contractor is also responsible for the acts of the driver of his vehicle, in which stocks were loaded for transportation. Explanation was called to show cause as to why transport contract should not be terminated as per clause No.3(iii) and 8(iv) of the agreement. Petitioner filed his explanation on 27.11.2008. The defence taken by the petitioner was that he was not aware of the diversion of the stocks, that illegality was committed by his employee, that driver of the vehicle was traced and arrested and the stocks were also recovered. He has also pointed out that the police have informed that petitioner was not involved in the alleged diversion of the stocks. Rejecting the contention of the petitioner in his explanation, final orders are passed on 10.02.2009, which is impugned in this writ petition. 5. Heard the learned counsel for the petitioner and learned standing counsel for the respondent-corporation. 6. Learned counsel for the petitioner contends that the impugned order is vitiated due to several illegalities. Order was passed without conducting any enquiry and without considering the explanation filed by the petitioner. The order impugned does not disclose the explanation submitted by the petitioner. The learned counsel submits that Joint Collector seems to have conducted enquiry beyond back of the petitioner. The Joint Collector did not issue notice to the petitioner when he conducted enquiry and the report of the Joint Collector and record based on which said report was drawn was not furnished to the petitioner. The petitioner had no occasion to go through the report of the Joint Collector and to respond to the same. The impugned order is based entirely on the said report of the Joint Collector. This amounts to gross violation of procedural formalities, vitiating the order on this ground alone. Learned counsel further contends that in W.P.No.23972 of 2008, this Court directed to conduct an enquiry. Conducting of enquiry would mean following the various steps of enquiry, whereas no enquiry was conducted. The relevant documents which are relied upon by the competent authority were not circulated. Petitioner was not given opportunity to deal with the contents of the documents, more particularly with reference to the report of the Joint Collector and that petitioner was not afforded personal hearing. 7. The relevant documents which are relied upon by the competent authority were not circulated. Petitioner was not given opportunity to deal with the contents of the documents, more particularly with reference to the report of the Joint Collector and that petitioner was not afforded personal hearing. 7. Learned counsel further submits that the show cause notice dated 26.11.2008 was for calling explanation as to why the transport contract should not be terminated as per clause 3(iii) and 8(iv) of the Agreement. Whereas the final order goes beyond the show cause notice. The order impugned not only terminates the contract, but orders blacklisting of the petitioner, forfeits pending bills, security deposits and bank guarantee. In addition already amount of Rs.2,66,499/- was recovered, which was assessed as double the cost of goods transported on the fateful day. Thus, the order vitiated on this ground also. 8. Learned counsel contends that the competent authority could not have gone beyond the show cause notice and without putting the petitioner on notice, could not have passed such orders, which resulted in severe penal consequences and loss of future earning capacity, forfeiture of huge amount of deposit and bank guarantee. Thus the order could not have been passed without following due process of law. Learned counsel further submits that no loss is caused to the respondent-corporation. The entire stock was recovered and given to the corporation. The corporation has utilized the stock. There was no wastage or damage to the stock on account of its storage for some time till the court passed orders for release of stock. However, the learned counsel submits that petitioner was also penalized by imposing double the cost of rice transported on the fateful day and since the stock was already recovered and utilized, it would amount to triple the cost. 9. In support of his contentions, learned counsel placed reliance on the decisions of the Supreme Court in the case of State of Karnataka v. Shree Rameshwara Rice Mills, Thirthahalli and batch (AIR 1987 Supreme Court 1359), ABL International Ltd., and another V Export Credit Guarantee Corporation of India Ltd. and others (2004) 3 Supreme Court Cases 553)and Canara Bank and others v. Debasis Das and others (2003) 4 Supreme Court Cases 557). 10. 10. Learned standing counsel submits that as per the terms of contract, the contractor is responsible for the quantity of stocks taken delivery by him for onward transportation till the stock is delivered as per the direction of the concerned officer. Even if employee commits any misconduct, which resulted in stock not being delivered or tampering the seals etc., the contractor shall be responsible. The terms of the contract vests power in the respondent corporation to suspend the contract and terminate the contract. In support of the contention, learned counsel placed reliance on paras 3(iii) and 8(iv), (v) and (vi) of the agreement. 11. Learned standing counsel submits that in view of para 8(v) of the agreement, failure or diversion of trucks with stocks or even misappropriation of stocks, results in termination of contract, forfeiture of security deposit, bank guarantee and pending bills and contractor can be blacklisted along with his representatives. In valid exercise of said power vested in the competent authority, the order impugned is passed. There is no illegality or irregularity in the order passed by the competent authority impugned in the writ petition and prayed for dismissal of the writ petition. 12. Before dealing with the contentions of the learned counsels, it is useful to refer to the terms of agreement entered between the petitioner and respondent-corporation on 08.04.2008. The relevant paras read as under: Para 3(iii): The contractor or his authorized representative is responsible for the quantity and quality of stock as taken delivery by him for onward transportation to the destination as per movement instructions issued by the District manager concerned from time to time. The corporation shall have absolute right to suspend the contract any time during the currency of the agreement, without any notice or without assigning any reasons if the contractor or his representative(s) is involved in a case under Essential Commodities Act or any other Acts. The Corporation shall have absolute right to terminate the contract with immediate effect in case of any diversion or misappropriation of stocks while in his custody without assigning any reasons whatsoever. The contractor is also responsible for any Acts of his Partners, Agents and Employees including Truck owners/ Drivers/Cleaners of the Trucks in which stocks are loaded for transportation. The Corporation shall have absolute right to terminate the contract with immediate effect in case of any diversion or misappropriation of stocks while in his custody without assigning any reasons whatsoever. The contractor is also responsible for any Acts of his Partners, Agents and Employees including Truck owners/ Drivers/Cleaners of the Trucks in which stocks are loaded for transportation. Para8(iv): The Contractor or his representative(s) is responsible for the quality and quantity of the stocks as taken delivery by him for transportation to the destinations as per the movement instructions issued by the District Manager concerned. The Corporation shall have absolute right to suspend the contract any time during the currency of the agreement, without any Notice or without assigning any reasons, if the Contractor or his representative(s) is involved in a case of diversion of stocks or under Essential Commodities Act or any other Act or convicted by court of Law in a criminal case in the existing or in any contract periods of the previous years by the contractors with the Corporation. The contractor is responsible for any acts of his representatives, agents, employees including Truck owner, Driver/Cleaner of the Truck in which stocks are loaded for transportation. v) Since the Transport contractor or his representatives are responsible for the quantity and quality of the stocks while in his custody, the contractor shall ensure delivery of stocks at destination as specified by the District Manager concerned. In the event of failure or diversion of trucks with stocks or even misappropriation of stocks, the V.C. & Managing Director shall have absolute right to terminate the contract without any notice and forfeit the Security Deposit and Bank Guarantee and even pending bills and the Contractor will be blacklisted along with his representatives. The action of V.C. & Managing Director in this regard is final and cannot be called into question. The action of V.C. & Managing Director in this regard is final and cannot be called into question. vi) The Corporation shall have the right to terminate the contract forthwith without prejudice to other rights and remedies in the event of breach of any of the terms and conditions and to get the work done for the unexpired period of the contract at the risk and cost of the Contractor(s) and forfeit the Security Deposit or any part thereof and also claim from the bankers who issued bank guarantee for the sum or sums due for any damages, losses, charges, expenses or costs that may be suffered or incurred by the Corporation due to the contractor’s negligence, or un-workman like performance of any of the services under the contract. The V.C. & Managing Director, Andhra Pradesh State Civil Supplies Corporation Limited shall also have absolute right to claim from the contractor or to invoke security deposit and Bank Guarantee to recover any dues from the Contractor. 13. Show cause notice is issued in purported exercise of power under clause 3(iii) and 8(iv) of the agreement calling for explanation of the petitioner as to why transport contract should not be terminated as there is violation of terms of contract. Petitioner submitted his explanation denying the allegations. 14. In the order impugned, there is no discussion on the explanation submitted by the petitioner. The Managing Director relies on the report of Joint Collector dated 05.12.2008 and comes to the conclusion that the allegation of the diversion was proved and, therefore, imposed the penalties as referred to above. 15. The show cause notice which resulted in passing the impugned orders relied on para 3 (III) and 8 (iv) of the agreement and called for explanation. These two provisions deal with power of the employer to suspend the services of the contractor and terminate the contract. Even the report of the Joint Collector which was basis for the impugned order only talks about exercising power under para 3 (III) and 8 (IV) whereas in the order impugned all the actions that can be taken against the contractor as provided in para 8 (V) were exercised. Provision in para 8(v) empowers the employer to forfeit the security deposit and bank guarantee, pending bills and black listing of the contractor. Provision in para 8(v) empowers the employer to forfeit the security deposit and bank guarantee, pending bills and black listing of the contractor. The record discloses that no opportunity was afforded to the petitioner before taking such extreme course as it involve severe civil and evil consequences. 16. The report of the Joint Collector was not communicated to the petitioner. No semblance of enquiry was conducted, though this Court directed to conduct enquiry in W.P.No.23972 of 2008. The order impugned goes beyond show cause notice issued by the Joint Collector. According to the terms of agreement, Managing Director alone is competent to pass orders to take penal action. When Managing Director alone is competent to initiate proceedings and take further action and as no authority is vested in him to delegate, he could not have asked the Joint Collector to call for explanation, consider the same and place the matter before him to pass final orders. 17. The competent authority could not have relied upon material without supplying the same to the petitioner. Competent authority could not have invoked a clause, on which no opportunity was afforded to the petitioner. When petitioner was called on to submit his explanation, he was only aware that even if his explanation is not satisfactory, it would only result in termination of contract, but not to result in other penal consequences. 18. The order impugned visited with severe penal and civil consequences. Such order could not have been passed without following due process and without affording due opportunity. 19. As per terms and conditions of the agreement, Managing Director is alone competent to take action as mandated by para 3 (III), 8 (IV) and 8 (V). In the instant case, show cause notice was issued by the Joint Collector, explanation was submitted to the Joint Collector and thereon, without conducting any further enquiry Joint Collector submitted his report to the Managing Director. There was no further exercise undertaken by the Managing Director. The report of the Joint Collector was not communicated to the petitioner and straight-away the impugned order was passed relying on the report of the Joint Collector going beyond the original show cause notice and resorting to power vested in para 8 (V). 20. There was no independent application of mind by the Managing Director and his decision was completely weighed by the report of the Joint Collector. 20. There was no independent application of mind by the Managing Director and his decision was completely weighed by the report of the Joint Collector. Further while passing the order, he went beyond the original scope of the action proposed. There was total lack of application of mind by the Managing Director. He holds that petitioner failed to deliver the stock by the time the order was passed, whereas stock was seized by the Police and kept in the court custody. Later Court ordered release of stock; stock was released’ delivered to MLS Point and distributed to the beneficiaries. All this was done much before order dated 10.02.2009 was passed. But, Managing Director holds otherwise, implying thereby that there was total non-application of mind. 21. As noted above, already penalty was imposed, which was double the cost of the goods transported in the motor vehicle of the petitioner and in fact, the goods were recovered and were in good quality and were distributed to the needy people and corporation did not sustain any loss on account of few days delay in delivery of the goods. Therefore, there is no justification to forfeit the entire bank guarantee, security deposit and deny the pending bills. No justification is shown in the order impugned to blacklist the petitioner from participating in future contracts and future awarding of contracts. The above infirmities are glaring and vitiate the entire proceedings. 22. In Canara Bank’s case (supra) dealing with the concept of natural justice, Supreme court held as under: “….. The old distinction between a judicial act and an administrative act has withered away. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice. The expression “civil consequences” encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. In its wide umbrella comes everything that affects a citizen in his civil life.” 23. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice. The expression “civil consequences” encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. In its wide umbrella comes everything that affects a citizen in his civil life.” 23. In ABL International Limited case (supra), on the scope of maintainability of the writ petition under Article 226 of the Constitution of India, involving disputes between two contracting parties, one private person and another, an instrumentality of the State, Supreme Court held as under: “It is clear from the above observations of this court, once the State or an instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the above said requirement of Article 14, then we have no hesitation in holding that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent”. 24. In State of Karnataka, Supreme Court held as under: “…. The crucial words in clause 12 are “and for any breach of conditions set forth hereinbefore, the first party shall be liable to pay damages to the second party as may be assessed by the second party”. On a plain reading of the words it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording of clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is a subsidiary and consequential power and not the primary power.” 25. The power to assess damages, as pointed out by the Full Bench, is a subsidiary and consequential power and not the primary power.” 25. In M/s.Kulja Industries Limited v. Chief General W.T.Proj. BSNL & others (Civil Appeal No.8944 of 2013, decided on 04.10.2013), the issue for consideration was blacklisting of a contractor by the B.S.N.L., an instrumentality of the State without following due process of law and imposing grave consequences than warranted were considered. On the power of blacklisting a contractor, it is held as under: “…..But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential pre-condition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ Court. The legal position on the subject is settled by a long line of decisions rendered by this Court starting with Erusian Equipment & Chemicals Ltd. v. State of West Bengal (1975) 1 SCC 70 where this Court declared that blacklisting has the effect of preventing a person from entering into lawful relationship with the Government for purposes of gains and that the Authority passing any such order was required to give a fair hearing before passing an order blacklisting a certain entity. ……. It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law.” 26. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law.” 26. In the said case, even though the allegation was that appellant fraudulently withdrawn a huge amount of money, considering the fact that the amount received was already paid back, Supreme Court held blacklisting of the appellant as not maintainable. It was held that permanent debarment from future contracts would be too harass and heavy a punishment to consider as reasonable. 27. As noted above, the order impugned is vitiated on several counts. Before taking extreme step of blacklisting the petitioner, forfeiting his bank guarantee and security deposit, petitioner ought to have been afforded fair hearing and not affording opportunity vitiates the impugned decision. In the instant case, there was no allegation of personal involvement of the petitioner in diverting the stock. On the complaint lodged by the respondent-corporation, police investigated and filed charge sheet. The Police have not alleged involvement of the petitioner and was not implicated in the criminal case. No doubt petitioner is responsible under the terms of contract for all the actions of his employee warranting adverse action, as rightly done by the respondent-corporation, the contract of the petitioner was suspended and double the amount of cost of goods transported in the vehicle was also recovered. It is the responsibility of petitioner to ensure that his employees do not commit illegal things while transporting the goods. These goods are essential food items intended for low income group people and any obstruction in timely distribution would cause grave hardship to them and such violation have to be dealt with sternly. However, in the facts of this case, the subsequent decision of blacklisting, forfeiture of the bank guarantee, security deposit and pending bills is disproportionate, violative of principles of natural justice, arbitrary and discriminatory as compared to the gravity of the violations committed by the petitioner and when petitioner was already visited with penal consequences. 28. For all the reasons aforesaid, the impugned order is set aside. 28. For all the reasons aforesaid, the impugned order is set aside. However, it is made clear that the amount already recovered from the petitioner as double the amount of cost of goods diverted from the vehicle of the petitioner can be retained by the respondent-corporation and petitioner can have no claim for seeking refund of the said amount. The amount withheld shall be released within a period of six (06) weeks from the date of receipt of a copy of this order. 29. Accordingly, the writ petition is allowed. No costs. Miscellaneous petitions if any pending in this writ petition shall stand closed.