The Gauhati High Court has clarified that the issuance of a Consignee Receipt cum Acceptance Certificate (CRAC) under the Government e-Marketplace (GeM) portal creates an immediate and non-negotiable obligation for the State to make payment within ten days, regardless of subsequent allegations of defects or the existence of an arbitration clause. This judgment reinforces the constitutional duty of the State to act fairly and avoid arbitrariness even in commercial contracts.
Background & Facts
The Dispute
The petitioner, a proprietorship firm operating as Arrow Medical Solutions, successfully bid to supply a BPL C-Arm Fluoroscope X-ray machine to the Employees’ State Insurance Corporation (ESIC) Model Hospital, Guwahati, through the GeM portal. The contract was awarded on 13.05.2021 under Contract No. GEMC-511687762071052, with a contracted price of Rs. 32,25,000. The equipment was delivered on 16.07.2021 and installed on 20.07.2021 by the Original Equipment Manufacturer (OEM), respondent No. 4.
Procedural History
- 16.07.2021: Delivery of C-Arm machine completed
- 20.07.2021: Installation certified by OEM’s authorized engineer
- 21.08.2021: Respondent No. 3 uploaded the Consignee Receipt cum Acceptance Certificate (CRAC) on GeM, confirming acceptance
- 07.09.2021 & 23.09.2021: Petitioner sent reminders for payment
- 07.10.2021: Respondent No. 3 first raised objections regarding country of origin, cost, and functionality
- 13.11.2021: Respondent No. 3 formally raised a defect complaint on GeM, alleging faulty wiring and camera
- 17.01.2021: Respondent No. 3 demanded replacement of the machine
- 06.03.2026: Writ petition decided by Gauhati High Court
Relief Sought
The petitioner sought a writ of mandamus directing the respondents to pay Rs. 32,25,000 within a specified time, arguing that the CRAC issuance triggered an absolute payment obligation under GeM’s General Terms and Conditions.
The Legal Issue
The central question was whether the issuance of a CRAC under GeM’s General Terms and Conditions creates an enforceable, non-discretionary payment obligation that cannot be withheld by the State merely because of post-acceptance allegations of defects, and whether the presence of an arbitration clause bars a writ petition under Article 226.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that Clause 12(i) of GeM 3.0 (Version 1.19) mandates 100% payment within ten days of CRAC issuance, with no provision for withholding payment due to post-acceptance defects. The CRAC was undisputedly issued on 21.08.2021, making payment due by 31.08.2021. The respondent’s objections raised in October 2021 were belated and violated the 10-day rejection window under Clause 11. The counsel relied on ABL International Ltd. v. Export Credit Guarantee Corporation of India and Unitech Ltd. v. TSIIC to assert that Article 226 remains maintainable against State entities for contractual breaches involving arbitrariness under Article 14.
For the Respondent
The respondents contended that the dispute was arbitrable under Clause 16 of GeM’s General Terms, citing Babanrao Rajaram Puna v. Samarath Builders. They argued that the machine was defective, as confirmed by an engineer’s report, and that Clause 11(iv) permits non-payment for rejected goods. They further invoked Clause 10(ii), which allows rejection during the warranty period if goods fail to perform satisfactorily, and claimed the petitioner and OEM had failed to cure the defects. They asserted that the writ petition was an abuse of process since arbitration was the agreed remedy.
The Court's Analysis
The Court examined the contractual framework under GeM 3.0 and the constitutional principles governing State conduct. It emphasized that Clause 12(i) unambiguously requires payment within ten days of CRAC issuance, and Clause 11(i) limits the right to reject goods to a strict 10-day window from receipt. The CRAC was issued on 21.08.2021, making the payment deadline 31.08.2021. The respondent’s objections, raised over a month later, were procedurally invalid.
"The contract does not empower the respondent No. 3 to withhold payment in the manner it has been done."
The Court distinguished between two distinct issues: (1) the obligation to pay upon CRAC issuance, and (2) the right to seek remedies for defective goods. The former is a clear, mechanical obligation under the contract; the latter involves disputed facts requiring evidence and is arbitrable. The Court held that the State cannot use the latter to justify non-compliance with the former.
The Court further held that the presence of an arbitration clause does not oust the jurisdiction under Article 226 when the State’s conduct is arbitrary. Citing Kumari Shrilekha Vidyarthi, the Court affirmed that the State cannot shed its constitutional identity as a public actor merely because it enters into a commercial contract. Withholding payment after CRAC issuance, without invoking the rejection mechanism within the stipulated period, amounted to an arbitrary act violating Article 14.
The Verdict
The petitioner won. The Court held that the issuance of the CRAC triggers an absolute, non-discretionary obligation to pay within ten days under GeM’s terms, irrespective of subsequent defect claims or the existence of an arbitration clause. The Court directed Respondent No. 3 to pay Rs. 32,25,000 within ten days of receiving a certified copy of the order, without prejudice to the respondent’s right to pursue arbitration for defect-related remedies.
What This Means For Similar Cases
CRAC Is a Payment Trigger, Not a Conditional Acknowledgment
- Practitioners must treat CRAC issuance as a binding payment trigger under GeM contracts
- Any delay beyond 10 days after CRAC triggers liability for interest under GeM’s penalty regime
- State entities cannot retroactively invoke defects to avoid payment if rejection window was not exercised
Arbitration Clauses Do Not Bar Writs Against Arbitrary State Action
- Writ petitions under Article 226 remain maintainable even where arbitration clauses exist
- Courts will examine whether the State’s conduct violates Article 14, irrespective of contractual remedies
- Petitioners should plead arbitrariness and procedural violation, not merely breach of contract
Post-Acceptance Defects Must Be Addressed Separately
- Defect claims after CRAC issuance must be pursued through warranty, service agreements, or arbitration
- The State cannot use defect allegations as a shield to withhold undisputed payments
- Legal strategy should bifurcate: claim payment via writ, pursue defect remedies via arbitration
