Placement Agency Should Be Sent SCN For Purported Negligence In Fulfilling Responsibilities, Along With Financial Losses Incurred By JSBCL: Jharkand High Court

Placement Agency Should Be Sent SCN For Purported Negligence In Fulfilling Responsibilities, Along With Financial Losses Incurred By JSBCL: Jharkand High Court

The Jharkhand High Court, presided over by Justices Rongon Mukhopadhyay and Deepak Roshan, has ruled on the interpretation and application of Rule 15 of the Jharkhand Excise (Operation of Retail Product Shops through Jharkhand State Beverages Corporation Limited) Rules, 2022, and its contractual clauses. According to the court, these should only be invoked when a placement agency, after due process, is found to have failed to provide manpower to the Jharkhand State Beverages Corporation Ltd. (JSBCL), resulting in financial losses for the corporation.

The crux of the matter lies in Rule 15, which empowers JSBCL to hold placement agencies accountable for financial losses incurred due to a failure to provide adequate manpower. However, Justices Rongon Mukhopadhyay and Deepak Roshan have placed restrictions on how JSBCL can utilise this rule.

The court ruled that Rule 15 and similar contractual clauses can only be invoked in situations where a placement agency demonstrably fails to fulfil its obligations of supplying manpower, and this failure directly results in a financial loss for JSBCL. Furthermore, the court emphasised that the placement agency must be granted a fair hearing before JSBCL can take any punitive action against them.

Referring to the Supreme Court's decision in Gorkha Security Services v. Government (NCT of Delhi) (2014), the bench emphasised the importance of adhering to principles of natural justice when taking action against any entity.

The court further clarified that Rule 15 cannot be used as a means to recover the difference between estimated and actual minimum guarantee revenue from placement agencies. In simpler terms, JSBCL cannot penalise agencies solely because a shop fails to meet its projected sales target. The court allows for the imposition of liquidated damages or penalties only in specific cases of failures by the placement agency.

Several writ petitions challenged the validity of Rule 15, arguing it contravened the Bihar (now Jharkhand) Excise Act, 1915, and provisions of the Constitution of India. The petitioners, including M/s. A2Z Infraservices Limited, M/s. Sumeet Facilities Limited, M/s. Primeone Workforce Private Limited, and M/s. Eagle Hunter Solutions Limited, had entered agreements with JSBCL following a tender issued in April 2023. Penalties were imposed on these companies during the agreement period, based on Rule 15, which they contested in the writ petitions.

The petitioner argued that, based on Rule 15, the Jharkhand State Beverages Corporation Ltd. (JSBCL) exceeded its authority by demanding payment of a penalty of ₹1,21,78,40,140 for alleged revenue shortfalls. While the rule allows for recovery of revenue losses from the placement agency, it does not authorise JSBCL to recover the alleged difference in minimum guarantee revenue. Instead, it merely provides for the imposition of liquidated damages or penalties on the placement agency in cases of non-achievement of minimum guaranteed revenue. The petitioner contended that the demand made by JSBCL is not in line with Rule 15 of the Rules of 2022.

The court traced the legislative history of Jharkhand's excise laws, highlighting the authority granted to JSBCL for operating retail excise shops across the state. JSBCL was permitted to appoint various agencies, including placement agencies, for shop operations under Rule 24.

Rule 15 of the Rules empowered JSBCL to determine sale targets and hold placement agencies accountable for revenue shortfalls. However, the petitioners argued that JSBCL exceeded its authority by demanding payment for alleged revenue shortfalls without proper adjudication or opportunity for defence.

The importance of following strict legal procedures when collecting money from businesses was another key takeaway from the court's ruling. The court stressed that rules governing liquor sales, which involve mandatory financial contributions from businesses, must be interpreted with utmost precision. This ensures transparency and fairness in the collection of such dues.

The court also scrutinised the legality of the agreement between the petitioners and JSBCL, raising concerns about its compliance with the Excise Act. It emphasised the necessity for strict adherence to taxing statutes.

Interestingly, the court also scrutinised the permissible role of placement agencies within the liquor sales framework. The court made it clear that placement agencies cannot engage in activities that essentially amount to retail liquor sales themselves. Such actions would be a direct violation of the Jharkhand Excise Act and could potentially render any agreements between JSBCL and the placement agency null and void.