Debarment Cannot Be Lifelong, Penalty Must Be Proportionate: J&K&L High Court Allows Contractor To Seek Fresh Registration
Holding that debarment is never permanent and its duration must depend upon the gravity of the misconduct, the Jammu and Kashmir and Ladakh High Court has ruled that even where a contractor is found guilty of forgery and financial impropriety, punitive action cannot be allowed to operate endlessly. The Court underscored that penalties in contractual matters must remain proportionate, reasonable, and time-bound.
In a judgment delivered by a Division Bench comprising Chief Justice Arun Palli and Justice Rajnesh Oswal, the High Court allowed an appeal filed by the Union of India and the Military Engineering Services (MES), while simultaneously safeguarding the future rights of the contractor by holding that past downgrading would not bar consideration of
Background:
The dispute arose out of a high-value contract awarded to contractor M/s Tarmat Ltd. for resurfacing of the runway at Air Force Station, Awantipora, Kashmir. During execution of the work, the contractor submitted an invoice purportedly issued by UltraTech Cement Limited for ₹51.27 lakh, whereas the actual invoice amount was only ₹23.74 lakh. On the strength of the forged document, an excess payment of about ₹26.99 lakh was released in favour of the contractor.
Upon verification, UltraTech Cement categorically informed the authorities that the invoice was forged and that the genuine invoice of the same number and date reflected a much lesser amount. This revelation prompted MES authorities to initiate disciplinary action against the contractor.
Subsequently a show-cause was issued by the Engineer-in-Chief, MES, calling upon the contractor to explain why it should not be “removed and debarred” from doing further business with the Government for submitting a forged invoice and fraudulently claiming enhanced payment.
In its reply, the contractor admitted the act of forgery, attributing it to its Project Manager, and accepted guilt in unequivocal terms. The company, however, pleaded for leniency, leaving the quantum of punishment to the discretion of the registering authority while highlighting that hundreds of families depended on it for livelihood.
Taking a lenient view, the competent authority refrained from blacklisting or permanent removal. Instead, it downgraded the contractor from 'SS' class to 'S' class and suspended its business dealings for two years, later reduced to one and a half years upon review.
Aggrieved by the downgrading, the contractor approached the writ court, which quashed the downgrade on the ground that no specific show-cause notice proposing downgrading had been issued. This led the Union of India and MES to file the present Letters Patent Appeal.
Appearing for the appellants, Mr. Vishal Sharma, learned DSGI, assisted by Mr. Eishaan Dadhichi, contended that the contractor had admitted serious fraud and that the show-cause notice clearly put it to notice that removal and debarment far graver penalties were proposed. Downgrading, it was argued, was only a lesser punishment well within the authority's powers.
On the other hand, Mr. R.K. Gupta, learned Senior Advocate, assisted by Mr. Uday Bhaskar, maintained that downgrading could not be sustained in the absence of a specific show-cause notice proposing such action, and therefore, the writ court had rightly interfered.
Court's Observations:
The Division Bench examined the law laid down by the Supreme Court in Gorkha Security Services v. Govt. of NCT of Delhi, reiterating that a valid show-cause notice must disclose both the charges and the nature of the proposed action.
The Court found that the notice in the present case clearly alleged forgery and fraudulent conduct and expressly proposed removal and debarment. In that context, downgrading from 'SS' to 'S' class was held to be a lesser punishment, which could validly be imposed without issuing a separate notice.
“When a show-cause notice proposing removal and debarment has been served, the imposition of a lesser punishment of downgrading cannot be faulted on the ground of violation of natural justice,” the Bench observed.
Setting aside the writ court's view, the High Court held that quashing the downgrade merely because the exact word 'downgrading' did not find mention in the notice was legally unsustainable.
However, while upholding the authority's power to downgrade the contractor, the Bench also emphasised that punitive measures cannot be eternal. Relying on the Supreme Court's ruling in Kulja Industries Ltd. v. Western Telecom Project BSNL, the Court observed,
“Debarment is recognised as a method of disciplining deviant contractors, but it is never permanent. The period of debarment would invariably depend upon the nature of the offence committed by the erring contractor.”
The Bench noted that nearly ten years had elapsed since the downgrading, the excess payment had already been adjusted, no pecuniary loss subsisted, and the contractor had expressed remorse.
In conclusion, the High Court allowed the appeal, set aside the writ court's judgment, and clarified that if the contractor applies afresh for registration or renewal as an 'SS' class contractor, its application must be considered on its own merits.
Case Title: Union Of India Vs M/S Tarmat Limited
Citation: 2026 LiveLaw (JKL)