Debarment Order Can't Be Extended To Other Group Companies Without Individual Opportunity Of Hearing: Delhi High Court

The Delhi High Court has held that a debarment order issued by one entity cannot be extended to other group companies without any independent opportunity of hearing through a separate show cause notice.“The principles of natural justice do not contemplate a cascading penalty in the absence of reasoned determination by each entity proposing to inflict penalty,” Justice Sachin Datta observed.The bench was dealing with a plea assailing “banning circular” issued by the National Thermal Power Corporation Limited (NTPC), barring business dealings with the Petitioner.The circular was issued in the aftermath of the Petitioner's contractual dispute with NTPC's joint venture— Aravali Power Company Private Limited (respondent no.2/ APCPL) and subsequent banning order passed by the latter.Petitioner claimed that the APCPL banning order cannot take within its sweep the business dealings of the petitioner with NTPC or any other third-party, with whom it has no contractual relationship.NTPC on the other hand claimed that as per its extant “policy for debarment from business dealing”, it was incumbent for the APCPL banning order to be extended to NTPC.Petitioner then contended that the impugned action is in contravention of its right to trade under Article 19 of the Constitution.The High Court agreed that the Petitioner's privity of contract is only with APCPL and it has no contractual association with NTPC. “The petitioner's dealing with respondent no.2/APCPL, which is an independent corporate entity, cannot have any bearing or impinge upon the petitioner's rights to pursuing business dealings with entities other than respondent no.2/APCPL,” the Court said.It cautioned that banning/ debarment is akin to civil death and such action must be taken with extreme circumspection and after adhering to procedural safeguards as mandated under law, and in consonance with principles of natural justice. “The extension of banning order passed by the respondent no.2, to proscribe business dealings of the petitioner qua entities which do not have any contractual dealings with petitioner, constitutes an arbitrary, disproportionate and unwarranted restriction of the legal and fundamental rights of the petitioner and its shareholders. The same cannot be countenanced,” the Court said.In any event, it added, “in case respondent no.1/NTPC or any other JVs/subsidiaries seeks to debar the petitioner, a mandatory prerequisite is to issue an independent show cause notice with regard thereto.”As such, the Court set aside the impugned order and allowed the plea.Appearance: Mr. Sanjeev Sagar (Sr. Adv.) along with Mr. AVS Subramnayam, Mr. Niraj Kumar, Ms. Nazia Parveen, Advs for Petitioner; Mr. Chetan Sharma (ASG) along with Mr. Kaustubh Anshuraj, Mr. Amit Gupta, Mr. R.V. Prabhat, Mr. Saurabh Tripathi, Mr. Vinay Yadav, Mr. Vikram Aditya, Mr. Shubham Sharma, Mr. Naman, Advs. Mr. Adarsh Tripathi, Mr. Vikram Singh Baid, Mr. Ajitesh Garg, Advs. for R2 Mr. Viraj Datar (Sr. Adv) along with Mr. Karan Batura, Ms. Meenal Duggal, Advs. for R4.Case title: Cembond Constructions Pvt Ltd v. NTPCCitation: 2025 LiveLaw (Del) 1101Case no.: W.P.(C) 9067/2025Click here to read order

Debarment Order Can't Be Extended To Other Group Companies Without Individual Opportunity Of Hearing: Delhi High Court

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