Contractor Can't Be Blacklisted On Mere Allegation Of Contractual Breach Without Anything More : Supreme Court

The Supreme Court recently observed that though an authority has inherent power to blacklist a contractor, such power must be exercised on a reasonable ground. It also observed that even at the stage of issuing a show cause notice, the guiding principles laid by the Court should be followed. “Therefore, the Authority is expected to be very careful before issuing a show cause notice. It is expected to understand the facts well and try to ascertain what sort of violation is said to have been committed by the contractor. As noted above, there is always an inherent power in the Authority to blacklist a contractor. But possessing such inherent power and exercising such power are two different situations and connotations. There may be a power but there should be reasonable ground to exercise such power.” The Bench of Justices J.B. Pardiwala and R. Mahadevan added that an order of blacklisting is a drastic step as it would put an end to the business of the person concerned. Placing its reliance on Erusian Equipment & Chemicals Ltd. Vs. State of W.B. reported in (1975) 1 SCC 70, the Court highlighted that passing of such an order against every contractor who is in breach of his contractual obligations, would be unreasonable and arbitrary. “Plainly, if a contractor is to be visited with the punitive measure of blacklisting on account of an allegation that he has committed a breach of a contract, the nature of his conduct must be so deviant or aberrant so as to warrant such a punitive measure. A mere allegation of breach of contractual obligations without anything more, per se, does not invite any such punitive action.” For background, the appellant was assigned a contract to print books by the respondent corporation. The appellant could not abide by the time period due to the COVID-19 pandemic. Pertinently, as per the contract, the appellant was required to complete the work of printing within the given time; otherwise, the consequences would be blacklisting. In view of this, a show cause notice was issued by the respondent to the appellant firm. Therein, it asked the firm to show cause as to why it should not be blacklisted for a period of three years and the EMD of Rs.5,00,000/ be forfeited. Challenging this, the appellant approached the High Court in its writ jurisdiction. However, the same came to be rejected. Since the writ appeal, filed before the Division Bench, was also dismissed, the matter came before the Supreme Court. At the outset, the Court acknowledged that a petition, challenging show cause notice, can be entertained under writ jurisdiction only if it is issued by an authority having no jurisdiction, or is issued with mala fide intention. Taking a cue from this, the Court perused the facts, including the issued show cause notice. It referred to Kulja Industries Limited v. Chief General Manager Western Telecom Project BSNL & Ors., AIR 2014 SC 9, wherein the Court laid down three grounds that an authority must satisfy before blacklisting the contractor. Firstly, whether the contractor has habitually failed to supply the equipment in time. Secondly, the equipment supplied did not perform satisfactorily. Thirdly, it failed to honour the bid without sufficient grounds. The Court also drew its strength from its decision in the Blue Dreamz Advertising Pvt.Ltd. & Anr. v. Kolkata Municipal Corp. & Ors.2024 LiveLaw (SC) 559. Inter-alia, the Court had observed that the penalty of blacklisting may only be imposed when it is necessary to safeguard the public interest from irresponsible or dishonest contractors. Given that these decisions were passed at the stage when the blacklisting order was already issued, the Court observed: “However, what is important for us to say is that when there are guiding principles explained by this Court as to when & in what circumstances a blacklisting order can be passed then, in our opinion such principles should also be borne in mind by the Authority at the time of issuing a show cause notice.” The Court added that even in the present case there was no good reason for the authority to issue a show cause notice. Why ask the contractor to face the proceedings when applying the aforesaid principles, the issue of show cause notice would be an empty formality., the Court said. The Court further stressed that after passing the final backlisting order, the only remedy left with the contractor is to approach the High Court, under its writ jurisdiction. Highlighting unnecessary litigation in the High Courts, the Court said that: “The endeavour should be to curtail the litigation and not to overburden the High Courts with litigations of the present type more particularly when the law by and large is very well settled and there is no further scope of any debate…In the overall view of the matter more particularly in the peculiar facts of the case, we have reached the conclusion that...

Contractor Can't Be Blacklisted On Mere Allegation Of Contractual Breach Without Anything More : Supreme Court

Gyanvi Khanna

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