Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(P&H) 79301

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Harsh Bunger, J
United Foods – Appellant
Versus
State of Haryana – Respondent
CWP-4767-2026

Advocates:
For the Appellants/Petitioners: Sanjeev Sharma, Vikramvir Sharda
For the Respondents: Abhimanyu Antil

While procurement agencies have the contractual right to relocate stocks and blacklist millers for embezzlement or contractual breach, blacklisting must be proportionate to the offense. Indefinite or permanent blacklisting is legally impermissible, and the duration should be determined based on the severity of the violation.

Headnote:(A) Custom Milling Policy, 2025-26 - Clause 22, 27(xvi), 31(xii) and 35 - Arbitration and Conciliation Act, 1996 - Sections 5 and 8 - Bharatiaya Nyaya Sanhita, 2023 - Sections 316(2) and 318(4) - Custom milling of paddy - Shortage of stock - Shifting of paddy and blacklisting of miller - Scope of judicial review in contractual disputes. The procurement agency holds ownership of paddy stored in the miller's premises, which remains under their joint supervisory custody. In events of misappropriation or failure to deliver milled rice as per schedule, the agency is empowered to initiate criminal action and transfer stocks to another facility at the risk and cost of the defaulting party. Permanent blacklisting is impermissible; the duration must be proportionate to the nature of the offence and limited to ensure the ends of justice are met. (Paras 11-17.1)

Facts of the case:
The petitioner, a partnership firm engaged in custom milling of paddy, was allotted a specific quantity of paddy for the marketing season. During a physical verification, a significant shortage of stock was detected, leading to the registration of a criminal case against the firm's partners for misappropriation. The agency issued orders to shift the remaining stocks to another premise and unilaterally blacklisted the firm. The firm challenged these actions, arguing a lack of contractual basis for shifting stocks and questioning the legality of the blacklisting order.

Findings of Court:
The court held that the policy and agreement clearly stipulate that the procurement agency retains the right to transfer paddy stocks at the miller's risk and cost for failure to meet delivery schedules or misappropriation. While the blacklisting was found to be justified due to the proven shortage and the serious nature of the breach of trust, an indefinite blacklisting order was deemed an excessive and disproportionate penalty.

Issues: The main issues were whether the agency had the authority to relocate paddy stocks from the petitioner's premises and whether the blacklisting of the firm was legally sustainable.

Ratio Decidendi: The court concluded that when a miller breaches the terms of a contract involving essential public goods and fails to account for stock, the agency is contractually empowered to move the assets. However, principles of proportionality mandate that blacklisting cannot be a permanent or indefinite measure and should be restricted to a specific timeframe relevant to the operational seasons.

Result: Writ petition disposed of; the blacklisting order was modified to cover the current and the subsequent milling season.

Table of Content
1. factual background of rice milling contract and dispute. (Para 1 , 2 , 3 , 4)

HARSH BUNGER J.

1 Petition herein is, inter alia, seeking a writ in the nature of Certiorari, for setting aside the office letter dated 09.12.2025 (Annexure P-23) and also order dated 09.02.2026 (Annexure P-25), both issued by office of Director General, Department of Food, Civil Supplies and Consumer Affairs, Haryana.

2. Briefly, the petitioner is registered partnership firm, which operates a rice mill, situated at District Karnal, Haryana. Petitioner firm is engaged in work of custom milling of paddy since 2017. It is stated that the Government of India adopts a policy of custom milling of paddy whereunder the State Government and its procurement agencies purchase paddy from the open market at Minimum Support Price (MSP) fixed by the Government of India and the said paddy is allotted to the rice millers for its milling/shelling as per custom milling policy framed by the State Government.

3. It is averred that after the milling, the resultant rice is delivered to the Food Corporation of India (FCI), in the central pool by the rice millers in the account of the concerned State Agency and the cost of rice and another charges are claimed by the concerned State Agency from the Food Corporation of India (FCI) as fixed by the Government of India.

3.1 It is stated that the petitioner had been entering into agreement for the last many years with the State of Haryana, through District Food and Supplies Controller and/or such other authority for custom milling of paddy in accordance with the terms and conditions of the agreement. It is claimed that the work of the petitioner has been satisfactory as he has been supplying rice within the timeline agreed upon and there has been no complaint of any embezzlement and/or misappropriation against the petitioner.

4. Government of Haryana had issued Policy/instructions on 16/18.09.2025 (Annexure P-1) for Paddy Procurement and its Milling during Kharif Marketing Season (KMS) 2025-26. Accordingly, petitioner-firm is stated to have entered into an agreement dated 10.10.2025 (Annexure P-2) with the District Food and Supplies Controller, for paddy milling for the Kharif Marketing Season 2025-26; whereupon, the petitioner was allotted 3772 Mt. of paddy for milling into rice.

4.1 As per the agreement, the petitioner is required to mill the paddy supplied to it and deliver the rice to FCI directly, as per prescribed quality specifications and as per the delivery schedule upto June 2026 (subject to milling period decided by the Government of India).

4.2 It is stated that a miller is required to carry out the milling operation only on that paddy, in respect of which the release order has been issued by the District Food and Supplies Controller and/or any other competent authority. It is further stated that in order to secure the interest of the Department, the petitioner has submitted security in form of Fixed Deposit Receipt (FDR) in favour of District Food and Supplies Controller (DFSC), Karnal and also submitted a cheque of Rs.50,00,000/- in favour of DFSC, Karnal. In addition to the aforesaid cheque and FDR, the petitioner is also stated to have submitted 2/3rd party sureties of reputed commission agents/rice millers, who have also handed over two cheques of Rs.50,00,000/- (each) in favour of DFSC, in order to secure the interest of the department, in the paddy allocated to the petitioner.

4.3 Concededly, the department allocated 3772 Mt. paddy to the petitioner for milling; out of which the petitioner claims to have milled approximately 610 Mt. paddy and the resultant 409 Mt. rice was stored in the premises of the petitioner, for delivery to Food Corporation of India as per the delivery schedule. It is stated that balance 3162 Mt. of paddy was available in the premises of the petitioner in terms of agreement dated 10.10.2025 (Annexure P-2); however, on 16.11.2025, certain officials of the Food and Supplie

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2026 Supreme(Online)(P&H) 79301

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARHHarsh Bunger, JUnited Foods – AppellantVersusState of Haryana – RespondentCWP-4767-2026

Cases Referred (1)

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Harsh Bunger, J
United Foods – Appellant
Versus
State of Haryana – Respondent
CWP-4767-2026