The Allahabad High Court has held that State authorities who blacklist a firm for an indefinite period in the teeth of the law laid down by the Supreme Court act in flagrant disregard of the constitutional mandate under Article 144 of the Constitution.

Article 144 provides that all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court. The Court held that the law authoritatively declared by the Supreme Court is, by virtue of that mandate, binding on the State and its officials.

Relying on Supreme Court decisions in Erusian Equipment and Chemicals Ltd. v. State of W.B., Gorkha Security Services v. Government (NCT of Delhi), Kulja Industries Ltd. v. Chief General Manager, Western Telecom Project BSNL and Vetindia Pharmaceuticals Ltd. v. State of U.P., the bench of Justice J.J. Munir and Justice Indrajeet Shukla held,

“Thus, the law authoritatively declared by the Supreme Court is binding upon all authorities including the State and its officials, either civil or judicial, in view of the Constitutional mandate enshrined under Article 144 of the Constitution of India.”

“We are afraid that the State authorities in the present case, have acted in flagrant disregard of the aforesaid constitutional mandate by violating the law laid down by the Supreme Court that blacklisting cannot be imposed in perpetuity, more so in absence of a valid show cause notice preceding an order for blacklisting being served upon person/firm/ contractor concerned.”

Petitioner no.1 is a society registered under the Multi State Cooperative Societies Act, 2002. In elections held on 15^th March 2019, petitioner no.2, Ritu Meena, was elected President and recognised as such by the Central Registrar, Cooperative Societies, New Delhi. The petitioners' case was that the erstwhile President thereafter executed an agreement dated 2^nd April 2019 in favour of respondent no.9, Mohd. Sadab Husain, on the strength of which the District Magistrate, Rampur, allotted the Society 11 wheat purchase centres.

A show cause notice dated 26^th August 2019 was issued by the Regional Food Controller, Moradabad Region, naming the noticee as 'Shri. Sadab Husain- Sachiv/adhyaksh', and the order dated 5^th October 2019 debarring the Society for an indefinite period followed. The Society said it learnt of the debarment only on receiving a demand notice dated 6^th March 2021 for Rs.4,08,191/- towards Mandi fee and development cess.

It pleaded that it was a victim of fraud practised by the private respondents in collusion with State officials, and that no notice was served on it or its recognised President.

The Standing Counsel submitted that permission had been granted after verification under the purchase policy notified by Government Order dated 6^th March 2019, and that the Society purchased 2,568.60 metric tonnes of wheat but failed to supply the whole of it to the Food Corporation of India. It was argued that respondent no.4 had acted in the bona fide belief that the agreement was genuine.

The Court observed that the Central Registrar's letter established that petitioner no.2 had assumed office before the agreement dated 2^nd April 2019 was executed, so the erstwhile President had no authority to execute it. Respondent nos. 9 to 12 being neither members nor office bearers at the relevant time, a notice addressed to respondent no.9 was no notice to the Society at all.

“…the notice allegedly issued having been issued to respondent no.9, Mohd. Sadab Husain, describing him as 'Sachiv/Adhyaksh', before the order of blacklisting is a farce and cannot be termed to be a notice to petitioner-Society.”

Relying on the aforesaid decisions, the Court held that debarment is never permanent.

“An order of blacklisting/debarment of a particular firm is a punishment that carries civil consequences and if imposed for an indefinite period/for all times to come, can be concluded as civil or commercial death for the entity.”

Holding that the denial of a meaningful opportunity of hearing vitiated the order and that a perpetual debarment could not be sustained, the Court quashed the order dated 5^th October 2019.

On the demand, the Court held that the Society, having not itself procured wheat in the Rabi Marketing Season 2019-20, could not be saddled with the Mandi fee and development charges. The Mandi Samiti, which permitted procurement pursuant to the District Magistrate's order, was not at fault, and its claim was directed to be liquidated by respondent no.4, the Regional Food Controller.

Accordingly, the writ petition was allowed.

Case Title: Aarambh Agro Purposes Co-Operative Society Ltd and another v. State of U.P. and 13 others

Click Here To Read/Download Order