Termination and Blacklisting of Audit Firm Over Allegations of Bribery Based on Unverified Viral Video Quashed: Jharkhand High Court

Jharkhand High Court delivered a landmark judgment in M/s. B. Gupta & Co. Chartered Accounts v. The State of Jharkhand & Others, quashing the blacklisting of the petitioner-firm for five years and imposing exemplary costs of ₹2,00,000 on the respondents. The blacklisting arose from allegations of bribery by the audit team, based on a viral social media video. The court found that the allegations were unsubstantiated and that the investigation lacked due process and fairness.

Background of the Case: The petitioner, M/s B. Gupta & Co., a chartered accountant firm, had been awarded a contract by the Jharkhand State Mid-day Meal Authority to audit the Mid-day Meal Project for the financial years 2018-19 to 2020-21. The firm was tasked with auditing in the Godda district. During the audit process in February 2023, a viral video surfaced, allegedly showing members of the audit team accepting bribes from schoolteachers. This led to the termination of the firm’s contract and a five-year blacklisting by the Director of the Jharkhand State Mid-day Meal Authority.

The petitioner contended that the video was a misrepresentation of events and that no bribery had occurred. According to the petitioner, the money shown in the video was part of a personal transaction to buy food for the audit team. Despite a detailed representation made by the firm, the Director of the Mid-day Meal Authority terminated the contract and blacklisted the firm based on an incomplete and flawed inquiry.

Presumptions and Lack of Evidence:

The court observed that the blacklisting and termination of the petitioner’s contract were based on presumptions and unverified social media reports. The inquiry officer, appointed to investigate the bribery allegations, failed to produce any concrete evidence or identify the teachers allegedly involved in the bribery. No witnesses confirmed any payment to the audit team or implicated the firm in any wrongdoing. The viral video, which was central to the allegations, was deemed unreliable, as its authenticity was not corroborated by any independent witnesses.

The court highlighted that the inquiry report relied on hearsay and lacked factual verification, violating the principles of natural justice. It was noted that the enquiry officer admitted that he could not identify any teachers involved in the alleged bribery and that no material evidence supported the claims made in the viral video.

Violation of Natural Justice and Arbitrary Action:

The court further emphasized that the blacklisting process lacked fairness and due process. The principles of natural justice were violated, as the petitioner was not given a fair opportunity to contest the charges. The investigation was flawed and relied solely on a viral social media video, without any independent verification. As a result, the court held that the actions taken by the respondents were arbitrary, illegal, and without application of mind.

The bench, led by Chief Justice M.S. Ramachandra Rao and Justice Deepak Roshan, underscored that blacklisting has severe consequences and cannot be issued without a thorough and well-founded investigation. Blacklisting is not only a bar from securing future contracts but also carries a significant stigma. The court condemned the respondents’ reliance on unverified social media reports and news clippings to take such drastic action against the petitioner.

The court imposed exemplary costs of ₹2,00,000 on the respondents, payable to the petitioner-firm within eight weeks. This penalty was meant to address the arbitrary and unfounded actions of the Jharkhand State Mid-day Meal Authority, which had severely impacted the firm’s reputation and business. The court stressed that public authorities must exercise their powers judiciously and ensure that blacklisting orders are issued only after proper due diligence and verification of facts.

The Jharkhand High Court allowed the writ petition, quashing the blacklisting and termination orders against M/s B. Gupta & Co.. The respondents were directed to pay ₹2,00,000 as exemplary costs to the petitioner-firm, reinforcing the importance of due process and fairness in administrative decisions.

Date of Decision: October 21, 2024

M/s. B. Gupta & Co. Chartered Accounts v. The State of Jharkhand & Others