CAG Cannot Decide What Wheat Was Lifted — It Is Not a Quality Control Authority: J&K High Court Slams FCI Over Unilateral Recovery

“The CAG, being a constitutional audit authority, is not empowered to assess the quality of agricultural produce — such conclusions without technical verification and participation of the affected party are legally unsustainable,” held the Jammu & Kashmir and Ladakh High Court in a landmark judgment.

In an emphatic reaffirmation of constitutional and contractual boundaries, the Court quashed recovery actions initiated by the Food Corporation of India (FCI) against Mahajan Roller Flour Mills and Amar Roller Flour Mills, both based in Jammu, terming the proceedings “arbitrary, belated and violative of principles of natural justice.”

The petitioners had approached the Court challenging communications from FCI issued in 2021 and 2022 demanding recovery of ₹2,71,515 and other amounts on the ground that they had allegedly lifted Fair Average Quality (FAQ) wheat instead of the Under Relaxed Specification (URS) wheat for which they had been allotted supply contracts back in 2016.

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“The CAG’s findings are neither binding nor self-executing and cannot be used to impose financial liability without independent adjudication,” declared the Court while rejecting FCI’s reliance on the audit report to justify its recovery claims.

The Court observed that the distinction between FAQ and URS wheat is a technical determination, which requires laboratory testing, moisture analysis, and grain evaluation by trained personnel. It is not a matter within the jurisdiction or competence of the CAG, whose constitutional mandate is limited to financial and procedural audits.

Referring to judicial precedent, the Court cited the Supreme Court’s ruling in A.K. Kraipak v. Union of India (AIR 1970 SC 150), stating that “no person can be condemned unheard and any administrative decision that affects civil consequences must conform to the principles of natural justice.”

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The Court was categorical in holding that once the stocks were certified and released by FCI’s own officials, the petitioners had no control or say in the classification of wheat, especially since Clause 10(F) of the tender made it clear that weighment and quality certification was the responsibility of FCI at the time of delivery.

“FCI is estopped from raising allegations of misclassification after certifying and delivering the stocks — to do so after five years is not only unjust but borders on administrative absurdity,” said the Court.

The recovery was thus viewed as a classic case of “approbation and reprobation”, wherein a party cannot take contradictory stands in law.

"Clause 15 of Tender Binds FCI — It Cannot Be the Judge of Its Own Dispute": High Court Warns Against Administrative Overreach

The judgment took serious exception to FCI bypassing the dispute resolution mechanism explicitly laid down in Clause 15 of the contract, which mandates that all disputes be adjudicated by competent courts in Jammu.

“The FCI, by unilaterally initiating recovery, arrogated to itself a judicial function which it contractually agreed to vest in the civil courts. Such action is ultra vires and violative of the rule of law,” observed Justice Wasim Sadiq Nargal.

The Court stressed that where contractual dispute forums are specified, they must be respected. FCI could have pursued a civil suit, but not a unilateral recovery on the back of an internal audit note.

"Recovery Initiated After Five Years Is Time-Barred and Unenforceable": Court Applies Limitation Principles Against FCI

The High Court further held that any civil recovery based on a breach of contract must be initiated within three years under Articles 55 or 113 of the Limitation Act, 1963. The FCI’s belated action in 2021 based on a 2016 transaction was declared as ex facie time-barred.

“Even if there is no express statutory bar, stale claims not pursued within a reasonable time offend both equity and the Constitution,” the Court stated, citing State of Punjab v. Bhatinda District Milk Producers Union (2007) 11 SCC 363.

The unexplained five-year delay was held to violate not only limitation law but also the legitimate expectation of finality in contractual performance.

"You Can’t Withhold Tenders on Unproven Allegations": Court Restores Petitioners’ Rights to Participate in Future Auctions

Apart from quashing the impugned recovery notices, the Court also restrained FCI from blocking the petitioners’ participation in ongoing or future e-auctions, emphasizing that such an embargo — especially one based on unilateral allegations — amounts to an unconstitutional denial of livelihood under Article 21.

“The right to livelihood is an integral part of the right to life — any action that affects this must be preceded by due notice and hearing,” said the Court.

Justice Wasim Sadiq Nargal concluded: “Any administrative or penal action founded solely on unilateral CAG observations is vitiated in law. The recovery proceedings initiated by the Food Corporation of India are hereby quashed as being arbitrary, time-barred, and violative of natural justice.”

The Court allowed both writ petitions and restrained FCI from acting on the basis of the impugned communications or recovering any amounts from the petitioners.

Date of Decision: 09 September 2025