State Doesn't Need Statutory Power To Blacklist A Fraud Committing Firm From Entering Into Contractual Relationship With It: Rajasthan HC

Rajasthan High Court ruled that power to blacklist a contractor was inherent in the party allotting the contract, without there being need for such power conferred by statute. Blacklisting of a firm found to have committed fraud was not a concept foreign to contractual law. The law specifically provided for restraining any firm to enter into further business relations with a party if it was found to have committed fraud with the other party, it held.The bench of Justice Rekha Borana held that the right to take such decisions if exercised between private parties was absolute, and if exercised by the State or its instrumentalities, was subject to judicial review on the touchstone of principles of natural justice and doctrine of proportionality. The Court was hearing a petition filed by a company against the communication by the Central Transmission Utility of India Limited (“CTU”) as per which it was blacklisted from applying for and obtaining any connectivity or open access with CTU. The petitioner was a firm authorized by the Government of Rajasthan for developing Solar Park for which it had applied for Stage I Connectivity which was granted. This was followed by application for Stage II connectivity, which was also granted. Transmission Agreements were also executed between the petitioner and the CTU. Subsequently, complaints were received by CTU against the petitioner pertaining to the land documents submitted by the petitioner for fulling conditions while applying for the Stage II connectivity. It was found that deliberate misrepresentations were made and misleading documents were submitted by the petitioner which amounted to fraud as per the Agreements. After providing opportunity of hearing to the petitioner, and not being satisfied with the explanation provided, CTU revoked the connectivity granted to the petitioner, encashed the bank guarantees submitted under the Agreements, and proceeded to blacklisting the petitioner for a period of 3 years. The order of blacklisting was challenged. It was argued by the petitioner that CTU being only a nodal agency had no statutory authority to do so and it could have acted only in terms of the Agreements signed between them which it did by cancelling the connectivity and encashing the bank guarantees. On the contrary, the CTU relied on the case of Patel Engineering Ltd. v Union of India to argue that the authority of the State to blacklist a person was a necessary concomitant to the executive part of the State to carry on the trade or business, and making all contracts for any person, requiring no statutory grant of such power. After hearing the contentions, the Court agreed with the reliance on the case of Patel Engineering by CTU and observed that, “As observed by Hon'ble the Apex Court in Patel Engineering (supra), the decision of State or its instrumentality not to deal with certain persons or class of persons on account of undesirability of entering into contractual relationship with such persons is called 'blacklisting' and the State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose.”The Court further made a reference to another Supreme Court case of Kulija Industries Ltd. v Western Telecom Project BSNL in which similar ruling was given. In this light, it was held that there was no need for any statue to confer this power. Such power, if exercised by the private parties was absolute, and if exercised by the State or any of its instrumentalities, was subject to judicial review on grounds of principles of natural justice and doctrine of proportionality. It was opined that in the current matter, since enough opportunity of hearing was provided to the petitioner, there was no violation of principles of natural justice, and further since fraud on part of the petitioner was proven on record, it could not have been ignored by CTU. Hence, it was stated the CTU was empowered to take a decision not to enter into any contractual relationship with the petitioner, and the actions were not arbitrary or against any provision of law. Accordingly, the petition was dismissed, Title: M/S Soltown Infra Private Limited & Ors. v. Central Transmission Utility of India Ltd. Citation: 2025 LiveLaw (Raj) 229Click Here To Read/Download Order

State Doesn't Need Statutory Power To Blacklist A Fraud Committing Firm From Entering Into Contractual Relationship With It: Rajasthan HC

Nupur Agrawal

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