No Acts & Articles mentioned in this case
AFR
Court No. 35
Case : WRIT C No. 14747 of 2020
Petitioner : Amit Kumar
Respondent : State of U.P. and Another
Counsel for Petitioner : Kshitij Shailendra, Vikrant Singh
Parihar
Counsel for Respondent : C.S.C.
Hon'ble Manoj Kumar Gupta,J.
Hon'ble Dr. Yogendra Kumar Srivastava,J.
(Per : Dr. Yogendra Kumar Srivastava,J.)
1.Heard Sri Kshitij Shailendra, learned counsel for the
petitioner and learned Standing Counsel for the State
respondents.
2.The present petition has been filed primarily seeking
to raise a challenge to the order dated 21.07.2020
(annexure 1 to the writ petition) passed by the Divisional
Food Controller, Kanpur Division, Kanpur (respondent no.
2) whereby the contracts awarded by the Department of
Food and Civil Supplies, Uttar Pradesh, in favour of the
petitioner, in respect of certain centres in District
Farrukhabad, for the years 202021 and 202122 have been
cancelled, and further the petitioner has been blacklisted by
the department.
3.The principal ground sought to be canvassed in order
to challenge the order dated 17.07.2020 is that the same
has been passed in violation of the principles of natural
justice and without affording a reasonable opportunity to
the petitioner. It has been contended that the eligibility
criteria prescribed under the government order dated
20.04.2018 is merely in the nature of a guideline and the
contract granted to the petitioner could not be cancelled on
the basis of the conditions prescribed therein. It is also
Neutral Citation No. 2020:AHC:86822DB
2
sought to be argued that the order impugned has the
effect of permanently blacklisting the petitioner which is
not permissible under law. In this regard, reliance has
been placed upon a judgment of this Court in M/s.
Vindhyawasini T. Transport Vs. State of U.P. and
others
1
.
4.Learned Standing Counsel appearing for the State
respondents has supported the order by submitting that
the award of handling and transport contracts by the
Department of Food and Civil Supplies is governed by the
policy guidelines contained under the government order
dated 20.04.2018 and the same are of a binding nature. It
is submitted that the aforementioned guidelines contain a
clear condition whereunder persons whose close relatives
are wholesale dealers or Aarhatiya are ineligible for award
of contracts. It is pointed out that along with the
application submitted by the petitioner for award of
contract, an affidavit had been filed stating that no near
relative of the petitioner was a wholesale dealer or
Aarhatiya. The aforesaid fact having been found to be
incorrect inasmuch as upon a complaint the matter was
inquired into and it was found that the petitioner's mother
is an owner of rice mill; accordingly, a show cause notice
was given to the petitioner, and in view of the undisputed
fact that the petitioner was ineligible for the award of the
the contract and that he had given a false declaration in
his affidavit, the order impugned has been passed, which
suffers from no illegality.
5.Rival contentions now fall for consideration.
6.A perusal of the material which has been placed on
1 2018 (4) ADJ 40 (DB)
3
record indicates that the award of handling and transport
contracts by the Department in Food and Civil Supplies
Government of U.P. is governed in terms of the policy
guidelines contained under a government order dated
20.4.2018. The eligibility conditions prescribed therein
are contained under Clause 9 of the said policy guidelines,
which is being extracted below :
9-vkosnu gsrq
vugZ
O;fDr@QeZ
1& vk<rh] xYyk O;kikjh] e.Mh lfefr@O;kikj dj ds
[kk|kUu@phuh ds ykblsUlh] ljdkjh lLrk xYyk] phuh]
feV~Vh rsy ds fodzsrk ¼dksVsnkj@mfpr nj fodzsrk½] xksnke
Lokeh ¼Cykd xksnke½] pkoy fey ekfyd] muds ifjokjhtu
rFkk fudVre lEcU/kh ,oa vf/koDrk mDr vkosnu ds fy;s
vugZ gksaxsA
2& ikfjokfjd tu rFkk muds fudVre lEcU/kh vFkok
Hkkxhnkj ,sls Bsdsnkj ftldk iwoZ esa Hkk0[kk0fu0] [kk|
foHkkx vFkok lEc} dz; ,tsUlh ls fuyfEcr py jgk gks
vFkok CySd fYkLV gqvk gks] ds lgHkkfxrk dh QeZ ;k
dEiuh vkosnu gsrq vgZ ugha gksasxsA
3& ,slk Bsdsnkj ftlus foHkkx ls izkIr Bsdk dk dk;Z djrs
le; fdlh dkykcktkjh vFkok vkijkf/kd xfrfof/k;ksa esa
lafYkIr ik;k x;k gks vFkok mlus Bsds dks fdlh vU; dks
lcysV fd;k gks rFkk ,slk O;fDr ftlds fo:} vko';d
oLrq vf/kfu;e&1955 ds micU/kksa ds v/khu nks"k fl} gks]
mls vkosnu gsrq vugZ ekuk tk;sxkA
7.In terms of a subsequent government order dated
25.5.2018 the conditions of eligibility under Clause 9 of
the previous government order have been further
clarified. Clause 2 of the subsequent government order
dated 25.5.2018 is being extracted below :
2& ifjogu ,oa gS.Mfyx uhfr ds fcUnw la[;k&09 esa ikfjokfjd tu rFkk
fudV laCka/kh ds vUrxZr fuEuor lfEefyr ekus tk;sxsa%&
1.Spouse
2. Father
3. Mother
4. Son
5. Son's wife
6. Son's son
4
7. Son's son's wife
8. Son's daughter
9. Son's daughter's husband
10.Great grand son
11.Great grand son's wife
12.Daughter
13.Daughter's husband
14.Daughter's son
15.Daughter's son wife
16.Daughter's Daughter
17.Daughter's Daughter's husband
18.Grand Father
19.Grand mother
20.Great Grand Father
21.Great Grand Mother
22.Mother's Father/ mother
23.Brother/ Sister
24.Spouse of brother/ sister
25.Spouse's father/mother
26.Spouse's mother/ sister
27.Spouse's father/ mother
28.Spouse's brother/ sister
29.Spouse of Spouse's brother/ sister
30.Mother's brother/ sister and their spouse
31.Father's brother/ sister and their spouse
32.Grand father/ mother of spouse
8.The guidelines contained under government order
dated 20.4.2018 also contain a proforma of the affidavit
required to be submitted along with the application which
clearly provides that in the event the applicant has made
concealment of any fact, the candidature/contract would
stand cancelled.
9.The petitioner has not disputed the fact that a show
cause notice dated 17.7.2020 had been duly served upon
5
him requiring him to submit his explanation by 20.7.2020
in respect of a complaint regarding his near relative being
the owner of a rice mill and to explain as to why the
aforesaid fact was concealed in the affidavit submitted by
the petitioner at the time of participation in the tender
proceedings. In terms of the show cause notice, the
petitioner was required to submit an explanation for the
same failing which he was to be blacklisted.
10.It appears that instead of submitting a specific
response to the showcause notice, the petitioner
submitted an application on 20.7.2020 making a request
for a further three weeks' time in order to submit his
reply. Taking into consideration the fact that the Clause 9
of the guidelines under the government order dated
20.4.2018 prescribing the eligibility conditions for
participation in the process of award of contract makes
persons whose near relatives are mill owners or Aarhatiya
as ineligible and the petitioner's mother having been
reported to be owner of a rice mill on the basis of an
inquiry made by the District Food Marketing Officer
Farrukhabad, the affidavit submitted by the petitioner
while participating in etender process, was found to be
false, and accordingly in terms of the guidelines contained
under the government orders dated 20.4.2018 and
25.5.2018, the contracts awarded to the petitioner have
been cancelled and the petitioner has been blacklisted by
the department.
11.The issue with regard to entitlement to a notice and
a right to be heard before blacklisting came up in the case
of M/s Erusian Equipment & Chemicals Ltd. Vs. State
of West Bengal & Anr.
2
and referring to the powers of the
2 (1975) 1 SCC 70
6
State under Article 298 of the Constitution of India
3
to
carry on trade or business, it was held that the exercise of
such powers and functions in trade by the State is subject
to Part III of the Constitution and the State while having
the right to trade has the duty to observe equality and
cannot choose to exclude persons by discrimination. The
relevant observations made in the judgment are as
follows:
“12. Under Article 298 of the Constitution the executive
power of the Union and the State shall extend to the
carrying on of any trade and to the acquisition, holding
and disposal of property and the making of contracts for
any purpose. The State can carry on executive function
by making a law or without making a law. The exercise
of such powers and functions in trade by the State is
subject to Part III of the Constitution. Article 14 speaks
of equality before the law and equal protection of the
laws. Equality of opportunity should apply to matters of
public contracts. The State has the right to trade. The
State has there the duty to observe equality. An ordinary
individual can choose not to deal with any person. The
Government cannot choose to exclude persons by
discrimination. The order of blacklisting has the effect of
depriving a person of equality of opportunity in the
matter of public contract. A person who is on the
approved list is unable to enter into advantageous
relations with the Government because of the order of
blacklisting. A person who has been dealing with the
Government in the matter of sale and purchase of
materials has a legitimate interest or expectation. When
the State acts to the prejudice of a person it has to be
supported by legality.
13. But for the order of blacklisting, the petitioner would
have been entitled to participate in the purchase of
cinchona. Similarly the respondent in the appeal would
also have been entitled but for the order of blacklisting
to tender competitive rates.
14. The State can enter into contract with any person it
chooses. No person has a fundamental right to insist that
the Government must enter into a contract with him. A
citizen has a right to earn livelihood and to pursue any
trade. A citizen has a right to claim equal treatment to
enter into a contract which may be proper, necessary
and essential to his lawful calling.
15. The blacklisting order does not pertain to any
3 the Constitution
7
particular contract. The blacklisting order involves civil
consequences. It casts a slur. It creates a barrier between
the persons blacklisted and the Government in the
matter of transactions. The blacklists are “instruments of
coercion”.
16. In passing an order of blacklisting the Government
department acts under what is described as a
standardised code. This is a code for internal instruction.
The Government departments make regular purchases.
They maintain list of approved suppliers after taking
into account the financial standard of the firm, their
capacity and their past performance. The removal from
the list is made for various reasons. The grounds on
which blacklisting may be ordered are if the proprietor
of the firm is convicted by court of law or security
considerations to warrant or if there is strong
justification for believing that the proprietor or
employee of the firm has been guilty of malpractices
such as bribery, corruption, fraud, or if the firm
continuously refuses to return Government dues or if the
firm employs a Government servant, dismissed or
removed on account of corruption in a position where
he could corrupt Government servants. The petitioner
was blacklisted on the ground of justification for
believing that the firm has been guilty of malpractices
such as bribery, corruption, fraud. The petitioners were
blacklisted on the ground that there were proceedings
pending against the petitioners for alleged violation of
provisions under the Foreign Exchange Regulations Act.
17. The Government is a Government of laws and not of
men. It is true that neither the petitioner nor the
respondent has any right to enter into a contract but
they are entitled to equal treatment with others who
offer tender or quotations for the purchase of the goods.
This privilege arises because it is the Government which
is trading with the public and the democratic form of
Government demands equality and absence of
arbitrariness and discrimination in such transactions.
Hohfeld treats privileges as a form of liberty as opposed
to a duty. The activities of the Government have a public
element and, therefore, there should be fairness and
equality. The State need not enter into any contract with
any one but if it does so, it must do so fairly without
discrimination and without unfair procedure. Reputation
is a part of a person's character and personality.
Blacklisting tarnishes one's reputation.
18. Exclusion of a member of the public from dealing
with a State in sales transactions has the effect of
preventing him from purchasing and doing a lawful
trade in the goods in discriminating against him in
favour of other people. The State can impose reasonable
8
conditions regarding rejection and acceptance of bids or
qualifications of bidders. Just as exclusion of the lowest
tender will be arbitrary, similarly exclusion of a person
who offers the highest price from participating at a
public auction would also have the same aspect of
arbitrariness.
19. Where the State is dealing with individuals in
transactions of sales and purchase of goods, the two
important factors are that an individual is entitled to
trade with the Government and an individual is entitled
to a fair and equal treatment with others. A duty to act
fairly can be interpreted as meaning a duty to observe
certain aspects of rules of natural justice. A body may be
under a duty to give fair consideration to the facts and
to consider the representations but not to disclose to
those persons details of information in its possession.
Sometimes duty to act fairly can also be sustained
without providing opportunity for an oral hearing. It will
depend upon the nature of the interest to be affected,
the circumstances in which a power is exercised and the
nature of sanctions involved therein.
20. Blacklisting has the effect of preventing a person
from the privilege and advantage of entering into lawful
relationship with the Government for purposes of gains.
The fact that a disability is created by the order of
blacklisting indicates that the relevant authority is to
have an objective satisfaction. Fundamentals of fair play
require that the person concerned should be given an
opportunity to represent his case before he is put on the
blacklist.”
12.The aforementioned proposition that no order of
blacklisting could be passed without affording opportunity
of hearing to the affected party was reiterated in the case
of Raghunath Thakur Vs. State of Bihar & Ors.
4
wherein
it was stated as follows:
“4. Indisputably, no notice had been given to the
appellant of the proposal of blacklisting the appellant. It
was contended on behalf of the State Government that
there was no requirement in the rule of giving any prior
notice before blacklisting any person. Insofar as the
contention that there is no requirement specifically of
giving any notice is concerned, the respondent is right.
But it is an implied principle of the rule of law that any
order having civil consequence should be passed only
after following the principles of natural justice. It has to
be realised that blacklisting any person in respect of
4 (1989) 1 SCC 229
9
business ventures has civil consequence for the future
business of the person concerned in any event. Even if
the rules do not express so, it is an elementary principle
of natural justice that parties affected by any order
should have right of being heard and making
representations against the order...”
13.The exercise of the executive power of the State or
its instrumentalities in entering into a contract with
private parties flowing from Article 298 of the
Constitution including the power to enter or not into a
contract came up for consideration in the case of Mahabir
Auto Stores & Ors. Vs. Indian Oil Corporation & Ors.
5
and it was held that the decision of the State or any of its
instrumentalities to enter or not into a contract being an
administrative action the same would be open to a
challenge on the ground of violation of Article 14 of the
Constitution and would also be subject to the power of
judicial review. The observations made in the judgment
are as follows:
“12. It is well settled that every action of the State or an
instrumentality of the State in exercise of its executive
power, must be informed by reason. In appropriate
cases, actions uninformed by reason may be questioned
as arbitrary in proceedings under Article 226 or Article
32 of the Constitution. Reliance in this connection may
be placed on the observations of this Court in Radha
Krishna Agarwal v. State of Bihar (1977) 3 SCC 457. It
appears to us, at the outset, that in the facts and
circumstances of the case, the respondent company IOC
is an organ of the State or an instrumentality of the
State as contemplated under Article 12 of the
Constitution. The State acts in its executive power under
Article 298 of the Constitution in entering or not
entering in contracts with individual parties. Article 14
of the Constitution would be applicable to those
exercises of power. Therefore, the action of State organ
under Article 14 can be checked. See Radha Krishna
Agarwal v. State of Bihar at p. 462, but Article 14 of the
Constitution cannot and has not been construed as a
charter for judicial review of State action after the
contract has been entered into, to call upon the State to
account for its actions in its manifold activities by stating
5 (1990) 3 SCC 752
10
reasons for such actions. In a situation of this nature
certain activities of the respondent company which
constituted State under Article 12 of the Constitution
may be in certain circumstances subject to Article 14 of
the Constitution in entering or not entering into
contracts and must be reasonable and taken only upon
lawful and relevant consideration; it depends upon facts
and circumstances of a particular transaction whether
hearing is necessary and reasons have to be stated. In
case any right conferred on the citizens which is sought
to be interfered, such action is subject to Article 14 of
the Constitution, and must be reasonable and can be
taken only upon lawful and relevant grounds of public
interest. Where there is arbitrariness in State action of
this type of entering or not entering into contracts,
Article 14 springs up and judicial review strikes such an
action down. Every action of the State executive
authority must be subject to rule of law and must be
informed by reason. So, whatever be the activity of the
public authority, in such monopoly or semimonopoly
dealings, it should meet the test of Article 14 of the
Constitution. If a governmental action even in the
matters of entering or not entering into contracts, fails
to satisfy the test of reasonableness, the same would be
unreasonable. In this connection reference may be made
to E.P. Royappa v. State of Tamil Nadu (1974) 4 SCC 3,
Maneka Gandhi v. Union of India (1978) 1 SCC 248,
Ajay Hasia v. Khalid Mujib Sehravardi (1981) 1 SCC
722, R.D. Shetty v. International Airport Authority of
India (1979) 3 SCC 489 and also Dwarkadas Marfatia
and Sons v. Board of Trustees of the Port of Bombay
(1989) 3 SCC 293. It appears to us that rule of reason
and rule against arbitrariness and discrimination, rules
of fair play and natural justice are part of the rule of law
applicable in situation or action by State instrumentality
in dealing with citizens in a situation like the present
one. Even though the rights of the citizens are in the
nature of contractual rights, the manner, the method
and motive of a decision of entering or not entering into
a contract, are subject to judicial review on the
touchstone of relevance and reasonableness, fair play,
natural justice, equality and nondiscrimination in the
type of the transactions and nature of the dealing as in
the present case.
x x x x x
18. ...we are of the opinion that decision of the
State/public authority under Article 298 of the
Constitution, is an administrative decision and can be
impeached on the ground that the decision is arbitrary
or violative of Article 14 of the Constitution of India on
any of the grounds available in public law field. It
11
appears to us that in respect of corporation like IOC
when without informing the parties concerned, as in the
case of the appellantfirm herein on alleged change of
policy and on that basis action to seek to bring to an end
to course of transaction over 18 years involving large
amounts of money is not fair action, especially in view
of the monopolistic nature of the power of the
respondent in this field. Therefore, it is necessary to
reiterate that even in the field of public law, the relevant
persons concerned or to be affected, should be taken
into confidence. Whether and in what circumstances
that confidence should be taken into consideration
cannot be laid down on any straitjacket basis. It
depends on the nature of the right involved and nature
of the power sought to be exercised in a particular
situation. It is true that there is discrimination between
power and right but whether the State or the
instrumentality of a State has the right to function in
public field or private field is a matter which, in our
opinion, depends upon the facts and circumstances of
the situation, but such exercise of power cannot be dealt
with by the State or the instrumentality of the State
without informing and taking into confidence, the party
whose rights and powers are affected or sought to be
affected, into confidence. In such situations most often
people feel aggrieved by exclusion of knowledge if not
taken into confidence.”
14.The requirement of grant of opportunity to show
cause before blacklisting was restated in the case of
Gronsons Pharmaceuticals (P) Ltd. & Anr. Vs. State of
Uttar Pradesh & Ors.
6
and it was held that since the
order blacklisting of an approved contractor results in civil
consequences, the principle of audi alteram partem is
required to be observed.
15.The power to blacklist a contractor was held to be
inherent in the party allotting the contract and the
freedom to contract or not to contract was held to be
unqualified in the case of private parties; however when
the party is State, the decision to blacklist would be open
judicial review on touchstone of proportionality and the
principles of natural justice. The relevant observations
6 AIR 2001 SC 3707
12
made in this regard in the case of M/s Kulja Industries
Limited Vs. Chief General Manager, W.T. Project, BSNL
& Ors.
7
are as under:
“17. That apart, the power to blacklist a contractor
whether the contract be for supply of material or
equipment or for the execution of any other work
whatsoever is in our opinion inherent in the party
allotting the contract. There is no need for any such
power being specifically conferred by statute or reserved
by contractor. That is because “blacklisting” simply
signifies a business decision by which the party affected
by the breach decides not to enter into any contractual
relationship with the party committing the breach.
Between two private parties the right to take any such
decision is absolute and untrammelled by any
constraints whatsoever. The freedom to contract or not
to contract is unqualified in the case of private parties.
But any such decision is subject to judicial review when
the same is taken by the State or any of its
instrumentalities. This implies that any such decision
will be open to scrutiny not only on the touchstone of
the principles of natural justice but also on the doctrine
of proportionality. A fair hearing to the party being
blacklisted thus becomes an essential precondition for a
proper exercise of the power and a valid order of
blacklisting made pursuant thereto. The order itself
being reasonable, fair and proportionate to the gravity
of the offence is similarly examinable by a writ court.”
16.The aforementioned judgment has taken note of the
fact that the principle of audi alteram partem has been
held to be applicable to the process that may eventually
culminate in the blacklisting of a contractor in the earlier
judgments in M/s Southern Painters Vs. Fertilizers &
Chemicals Travancore Ltd. & Anr.
8
, Patel Engineering
Ltd. Vs. Union of India
9
, B.S.N. Joshi & Sons Ltd. Vs.
Nair Coal Services Ltd. & Ors.
10
, and Joseph
Vilangandan Vs. The Executive Engineer (PWD),
Ernakulam & Ors.
11
.
7 (2014) 14 SCC 731
8 1994 Supp (2) SCC 699
9 (2012) 11 SCC 257
10 (2006) 11 SCC 548
11 (1978) 3 SCC 36
13
17.It was held that even though the right of the
petitioner may be in the nature of a contractual right, the
manner, the method and the motive behind the decision
of the authority whether or not to enter into a contract is
subject to the powers of judicial review on the touchstone
of fairness, relevance, natural justice, nondiscrimination,
equality and proportionality. In this regard reference was
made to earlier decisions in Radha Krishna Agarwal &
Ors. Vs. State of Bihar & Ors.
12
, E.P. Royappa Vs. State
of Tamil Nadu & Anr.
13
, Maneka Gandhi Vs. Union of
India & Anr.
14
, Ajay Hasia & Ors. Vs. Khalid Mujib
Sehravardi & Ors.
15
, Ramana Dayaram Shetty Vs.
International Airport Authority of India & Ors.
16
and
Dwarkadas Marfatia and Sons Vs. Board of Trustees of
the Port of Bombay
17
.
18.The legal position governing blacklisting in USA and
UK was also considered and it was noticed that in USA the
term “debarring” is used by the statutes and the courts
and comprehensive guidelines have been issued in this
regard. The observations made in the judgment in this
respect are as follows:
“21. The legal position governing blacklisting of
suppliers in USA and UK is no different. In USA instead
of using the expression “blacklisting” the term
“debarring” is used by the statutes and the courts. The
Federal Government considers “suspension and
debarment” as a powerful tool for protecting taxpayer
resources and maintaining integrity of the processes for
federal acquisitions. Comprehensive guidelines are,
therefore, issued by the government for protecting
public interest from those contractors and recipients
who are nonresponsible, lack business integrity or
engage in dishonest or illegal conduct or are otherwise
12 (1977) 3 SCC 457
13 (1974) 4 SCC 3
14 (1978) 1 SCC 248
15 (1981) 1 SCC 722
16 (1979) 3 SCC 489
17 (1989) 3 SCC 293
14
unable to perform satisfactorily. These guidelines
prescribe the following among other grounds for
debarment:
(a) Conviction of or civil judgment for.—
(1) Commission of fraud or a criminal offense in
connection with obtaining, attempting to obtain,
or performing a public or private agreement or
transaction;
(2) Violation of Federal or State antitrust statutes,
including those proscribing price fixing between
competitors, allocation of customers between
competitors, and bid rigging;
(3) Commission of embezzlement, theft, forgery,
bribery, falsification or destruction of records,
making false statements, tax evasion, receiving
stolen property, making false claims, or
obstruction of justice; or (4) Commission of any
other offense indicating a lack of business
integrity or business honesty that seriously and
directly affects your present responsibility;
(b) Violation of the terms of a public agreement or
transaction so serious as to affect the integrity of an
agency program, such as.—
(1) A wilful failure to perform in accordance with
the terms of one or more public agreements or
transactions;
(2) A history of failure to perform or of
unsatisfactory performance of one or more public
agreements or transactions; or
(3) A wilful violation of a statutory or regulatory
provision or requirement applicable to a public
agreement or transaction;
(c) x x x x x
(d) Any other cause of so serious or compelling a
nature that it affects your present responsibility.
22. The guidelines also stipulate the factors that may
influence the debarring official’s decision which include
the following:
(a) The actual or potential harm or impact that
results or may result from the wrongdoing.
(b) The frequency of incidents and/or duration of
the wrongdoing.
(c) Whether there is a pattern or prior history of
wrongdoing.
(d) Whether contractor has been excluded or
disqualified by an agency of the Federal Government
or have not been allowed to participate in State or
local contracts or assistance agreements on a basis of
15
conduct similar to one or more of the causes for
debarment specified in this part.
(e) Whether and to what extent did the contractor
plan, initiate or carry out the wrongdoing.
(f) Whether the contractor has accepted
responsibility for the wrongdoing and recognized the
seriousness of the misconduct.
(g) Whether the contractor has paid or agreed to pay
all criminal, civil and administrative liabilities for the
improper activity, including any investigative or
administrative costs incurred by the government,
and have made or agreed to make full restitution.
(h) Whether contractor has cooperated fully with the
government agencies during the investigation and
any court or administrative action.
(i) Whether the wrongdoing was pervasive within
the contractor’s organization.
(j) The kind of positions held by the individuals
involved in the wrongdoing.
(k) Whether the contractor has taken appropriate
corrective action or remedial measures, such as
establishing ethics training and implementing
programs to prevent recurrence.
(l) Whether the contractor fully investigated the
circumstances surrounding the cause for debarment
and, if so, made the result of the investigation
available to the debarring official.”
19.In Patel Engineering Ltd. Vs. Union of India
9
,
referring to the authority of the State and its
instrumentalities to enter into contracts in view of the
power conferred under Article 298 of the Constitution it
was taken note of that the right to make a contract
includes the right to not to make a contract; however,
such right including the right to blacklist which could be
exercised by the State is subject to the constitutional
obligation to obey the command of Article 14. The
observations made in the judgment in this regard are
being extracted below:
“13. The concept of “blacklisting” is explained by this
Court in Erusian Equipment & Chemicals Limited v.
9 (2012) 11 SCC 257
16
State of W.B. (1975) 1 SCC 70, as under: (SCC p.75,
para 20)
“20. Blacklisting has the effect of preventing a
person from the privilege and advantage of
entering into lawful relationship with the
Government for purposes of gains.”
14. The nature of the authority of State to blacklist
persons was considered by this Court in the
abovementioned case and took note of the constitutional
provision (Article 298), which authorises both the Union
of India and the States to make contracts for any
purpose and to carry on any trade or business. It also
authorises the acquisition, holding and disposal of
property. This Court also took note of the fact that the
right to make a contract includes the right not to make a
contract. By definition, the said right is inherent in every
person capable of entering into a contract. However,
such a right either to enter or not to enter into a
contract with any person is subject to a constitutional
obligation to obey the command of Article 14. Though
nobody has any right to compel State to enter into a
contract, everybody has a right to be treated equally
when State seeks to establish contractual relationships.
The effect of excluding a person from entering into a
contractual relationship with State would be to deprive
such person to be treated equally with those, who are
also engaged in similar activity.
15.It follows from the judgment in Erusian
Equipment case that the decision of State or its
instrumentalities not to deal with certain persons or
class of persons on account of the undesirability of
entering into contractual relationship with such persons
is called blacklisting. State can decline to enter into a
contractual relationship with a person or a class of
persons for a legitimate purpose. The authority of State
to blacklist a person is a necessary concomitant to the
executive power of the State to carry on the trade or the
business and making of contracts for any purpose, etc.
There need not be any statutory grant of such power.
The only legal limitation upon the exercise of such an
authority is that State is to act fairly and rationally
without in any way being arbitrary—thereby such a
decision can be taken for some legitimate purpose. What
is the legitimate purpose that is sought to be achieved by
the State in a given case can vary depending upon
various factors.”
20.The aforementioned legal position has been
considered in a recent judgment of this Court in M/s Baba
17
Traders Vs. State of U.P. and others
18
.
21.We may thus reiterate that the right to enter into a
contractual relationship is inherent in every person
capable of entering into a contract with a concomitant
right also not to enter into a contract. The right to refuse
to enter into a contract however does not vest with the
State and its instrumentalities in the same manner as it
vests with a private individual. The right to enter into a
contract by the State flows from the power under Article
298 of the Constitution and together with it is the right
not to enter into a contract and the choice to blacklist any
particular person with whom the State does not wish to
enter into a contract. This decision however in case it is
taken by the State or any of its instrumentalities is to be
made reasonably and in accord with the principles of
natural justice.
22.An order of blacklisting has the effect of depriving a
person of equality of opportunity in the manner of public
contract and in a case where the State acts to the
prejudice of a person it has to be supported by legality.
The activities of the State having the public element
quality must be imbued with fairness and equality.
23.The order of blacklisting involves civil consequences
and has the effect of creating a disability by preventing a
person from the privilege and advantage of entering into
lawful relationship with the government therefore
fundamentals of fair play would require that the
concerned person should be given an opportunity to
represent his case before he is put on the blacklist. A fair
hearing to the party before being blacklisted thus becomes
18 2019 (11) ADJ 516 (DB)
18
an essential precondition for a proper exercise of the
power and a valid order of blacklisting made pursuant
thereto. The applicability of the principle of audi alteram
partem and the necessity of issuance of show cause notice
also become imperative before passing of any such order
of blacklisting.
24.In the instant case, the petitioner was duly served
with a show cause notice calling upon him to submit his
explanation in respect of the eligibility conditions
provided under the guidelines for award of handling and
transport contracts under the relevant government orders
and to clarify the statement of fact made in this regard in
his affidavit filed along with his application which had
been filed while participating in the etender.
25.Counsel for the petitioner apart from reiterating that
the petitioner had been granted only three days' time to
submit a response to the notice did not dispute the fact
stated in the report which had been submitted by the
District Food Marketing Officer Farrukhabad wherein it
had been found that the petitioner's mother was the
owner of a rice mill namely M/s. Amit Rice Mill. Counsel
for the petitioner also could not dispute the fact that
under Clause 9 of the guidelines contained under the
government order dated 20.4.2018 prescribing the
eligibility criteratia, the petitioner would be ineligible.
Further, it has also not been disputed that the statement
of fact mentioned in the affidavit along with the
application submitted by the petitioner at the time of
participation in the tender process was incorrect and false,
in view of the fact that the petitioner's mother was the
owner of a rice mill.
19
26.The question which therefore now falls for
consideration is as to whether any prejudice was caused to
the petitioner by not allowing further time to him to
submit his explanation and also as to whether grant of any
further opportunity would have made any difference in
the outcome or that the same would have been a mere
formality.
27.The question as to whether the Court in exercise of
powers under Article 226 is bound to declare an order of
the government passed in alleged breach of principles of
natural justice as void or whether the Court can refuse to
grant relief on the ground that the facts of the case do not
justify exercise of discretion to interfere or for the reason
that defacto prejudice has not been shown fell for
consideration in the case of M.C. Mehta Vs. Union of
India and others
19
, and it was held as follows :
“15. It is true that whenever there is a clear violation of
principles of natural justice, the courts can be
approached for a declaration that the order is void or for
setting aside the same. Here the parties have
approached this Court because the orders of the
Department were consequential to the orders of this
Court. The question however is whether the Court in
exercise of its discretion under Article 32 or Article 226
can refuse to exercise discretion on facts or on the
ground that no de facto prejudice is established. On the
facts of this case, can this Court not take into
consideration the fact that any such declaration
regarding the 10.3.1999 order will restore an earlier
order dated 30.7.1997 in favour of Bharat Petroleum
Corporation which has also been passed without notice
to HPCL and that if the order dated 10.3.1999 is set
aside as being in breach of natural justice, Bharat
Petroleum will be getting two plots rather than one for
which it has no right after the passing of the latter order
of this court dated 7.4.1998?
16. Courts are not infrequently faced with a dilemma
between breach of the rules of natural justice and the
Court's discretion to refuse relief even though rules of
19 (1999) 6 SCC 237
20
natural justice have been breached, on the ground that
no real prejudice is caused to the affected party.”
28.On the point as to whether breach of principles of
natural justice is in itself sufficient to grant relief and that
no further de facto prejudice need be shown, the decisions
in the case of Ridge Vs. Baldwin
20
and S.L. Kapoor Vs.
Jagmohan
21
were considered and it was stated as
follows:
“20. It is true that in Ridge v. Baldwin it has been held
that breach of the principles of natural justice is in itself
sufficient to grant relief and that no further de facto
prejudice need be shown. It is also true that the said
principles have been followed by this Court in several
cases but we might point out that this Court has not laid
down any absolute rule. This is clear from the judgment
of Chinnappa Reddy, J. in S. L. Kapoor v. Jagmohan.
After stating that 'principles of natural justice know of
no exclusionary rule dependent on whether it would
have made any difference if natural justice had been
observed' and that 'nonobservance of natural justice is
itself prejudice to any man and proof of prejudice
independently of proof of denial of natural justice is
unnecessary', Chinnappa Reddy, J., also laid down an
important qualification as follows :
"As we said earlier where on the admitted or
indisputable facts only one conclusion is possible
and under the law only one penalty is permissible,
the court may not issue its writ to compel the
observance of natural justice, not because it is not
necessary to observe natural justice but because
courts do not issue futile writs."
29.The contention that if on the admitted or
indisputable factual position, only one conclusion is
possible and permissible, the court need not issue a writ
merely because there is violation of principles of natural
justice and as to whether relief can be refused where the
court thinks that the case of the applicant is not one of
'real substance' or that there is no substantial possibility of
his success or that the result will not be different, even if
20 1964 A.C. 40
21 (1980) 4 SCC 379
21
natural justice is to be followed, was considered by
referring to the judgments of Malloch v. Aberdeen
Corporation
22
, Glynn v. Keele University
23
, and
Cinnamond v. British Airports Authority
24
where such a
view had been held. In particular the observations made
by Straughton, L.J., in R. v. Ealing Magistrates' court ex
p Fannaran
25
that there must be 'demonstrable beyond
doubt' that the result would have been different, were
referred to.
30.The observations made by Lord Woolf in Lloyd v.
McMahon
26
, were also noticed on the point that refusal of
discretion in certain cases of breach of natural justice may
not be disfavoured. The observations made by Megarry,
J., in John v. Rees
28
stating that there are always 'open
and shut cases' and no absolute rule of proof of prejudice
can be laid down and that merits are not for the court but
for the authority to consider, were also referred to.
31.The application of the principles of 'useless formality
theory' as an exception to the principles of natural justice
was discussed and it was pointed out that even in cases
where the facts are not all admitted or beyond dispute,
there is considerable unanimity that the courts can, in
exercise of their 'discretion', refuse certiorari, prohibition,
mandamus or injunction even though natural justice is not
followed.
32.We may gainfully refer to the case of Malloch v.
Aberdeen Corporation
22
(supra) wherein considering a
challenge to a resolution on the ground that the same had
22 (1971) 1 W.L.R. 1578
23 (1971) 1 W.L.R. 487
24 (1980) 1 W.L.R. 582
25 (1996) 8 Admn LR 351 (358)
26 (1987) 2 WLR 821
28 (1969) 2 WLR 1294
22 (1971) 1 W.L.R. 1578
22
been passed in contravention of the principles of natural
justice inasmuch as the Committee had refused to receive
written representations or to afford to the appellant a
hearing before they passed the resolution, the following
observations were made by Lord Wilberforce,J.
"The appellant has first to show that his position was
such that he had, in principle, a right to make
representations before a decision against him was taken.
But to show this is not necessarily enough, unless he can
also show that if admitted to state his case he had a case
of substance to make. A breach of procedure, whether
called a failure of natural justice, or an essential
administrative fault, cannot give him a remedy in the
courts, unless behind it there is something of substance
which has been lost by the failure. The court does not
act in vain."
33.A similar view was taken in Cinnamond v. British
Airports Authority
24
wherein considering a challenge on
the ground of violation of principles of natural justice
based on the contention that no opportunity to make a
representation has been given, Brandon LJ. observed as
follows :
“If I am wrong in thinking that some opportunity should
have been given, then it seems to me that no prejudice
was suffered by the plaintiffs as a result of not being
given that opportunity. It is quite evident that they were
not prepared then, and are not even prepared now, to
give any satisfactory undertakings about their future
conduct. Only if they were would representations be of
any use. I would rely on what was said in Malloch v.
Aberdeen Corpn (1971) 1 WLR 1578, first by Lord Reid
and secondly by Lord Wilberforce. The effect of what
Lord Wilberforce said is that no one can complain of not
being given an opportunity to make representation if
such an opportunity would have availed him nothing.”
34.The applicability of the 'useless formality test' or the
'test of prejudice' in the context of the nature, scope and
applicability of the principles of natural justice has been
explained in Dharampal Satyapal Ltd. Vs. Deputy
24 (1980) 1 W.L.R. 582
23
Commissioner of Central Excise, Gauhati and others
27
and it was held that there may be situations where it is
felt that a fair hearing 'would make no difference' –
meaning that a hearing would not change the ultimate
conclusion reached by the decisionmaker; then no legal
duty to supply a hearing arises and it may not be
necessary to strike down the action and refer the matter
back to the authorities to take a fresh decision after
complying with the procedural requirements in those
cases where nongrant of hearing has not caused any
prejudice to the person against whom the action is taken.
The observations made in this regard in the judgment are
as follows :
“38. ...While the law on the principle of audi alteram
partem has progressed in the manner mentioned above,
at the same time, the courts have also repeatedly
remarked that the principles of natural justice are very
flexible principles. They cannot be applied in any
straitjacket formula. It all depends upon the kind of
functions performed and to the extent to which a person
is likely to be affected. For this reason, certain
exceptions to the aforesaid principles have been invoked
under certain circumstances. For example, the courts
have held that it would be sufficient to allow a person to
make a representation and oral hearing may not be
necessary in all cases, though in some matters,
depending upon the nature of the case, not only full
fledged oral hearing but even crossexamination of
witnesses is treated as a necessary concomitant of the
principles of natural justice. Likewise, in service matters
relating to major punishment by way of disciplinary
action, the requirement is very strict and fullfledged
opportunity is envisaged under the statutory rules as
well. On the other hand, in those cases where there is an
admission of charge, even when no such formal inquiry
is held, the punishment based on such admission is
upheld. It is for this reason, in certain circumstances,
even postdecisional hearing is held to be permissible.
Further, the courts have held that under certain
circumstances principles of natural justice may even be
excluded by reason of diverse factors like time, place,
the apprehended danger and so on.
27 (2015) 8 SCC 519
24
39. We are not concerned with these aspects in the
present case as the issue relates to giving of notice
before taking action. While emphasising that the
principles of natural justice cannot be applied in
straitjacket formula, the aforesaid instances are given.
We have highlighted the jurisprudential basis of
adhering to the principles of natural justice which are
grounded on the doctrine of procedural fairness,
accuracy of outcome leading to general social goals, etc.
Nevertheless, there may be situations wherein for some
reason—perhaps because the evidence against the
individual is thought to be utterly compelling—it is felt
that a fair hearing “would make no difference”—meaning
that a hearing would not change the ultimate conclusion
reached by the decisionmaker—then no legal duty to
supply a hearing arises. Such an approach was endorsed
by Lord Wilberforce in Malloch v. Aberdeen Corpn., who
said that: (WLR p. 1595 : All ER p.1294)
“…A breach of procedure…cannot give [rise to] a
remedy in the courts, unless behind it there is
something of substance which has been lost by the
failure. The court does not act in vain.”
Relying on these comments, Brandon L.J. opined
in Cinnamond v. British Airports Authority that:
(WLR p. 593 : All ER p. 377)
“…no one can complain of not being given an
opportunity to make representations if such an
opportunity would have availed him nothing.”
In such situations, fair procedures appear to serve
no purpose since the “right” result can be secured
without according such treatment to the
individual.
40. In this behalf, we need to notice one other exception
which has been carved out to the aforesaid principle by
the courts. Even if it is found by the court that there is a
violation of principles of natural justice, the courts have
held that it may not be necessary to strike down the
action and refer the matter back to the authorities to
take fresh decision after complying with the procedural
requirement in those cases where nongrant of hearing
has not caused any prejudice to the person against
whom the action is taken. Therefore, every violation of a
facet of natural justice may not lead to the conclusion
that the order passed is always null and void. The
validity of the order has to be decided on the touchstone
of “prejudice”. The ultimate test is always the same viz.
the test of prejudice or the test of fair hearing.
41. In ECIL v. B. Karunakar (1993) 4 SCC 727, the
majority opinion, penned down by Sawant, J., while
summing up the discussion and answering the various
25
questions posed, had to say as under qua the prejudice
principle: (SCC pp. 75658, para 30)
“30. Hence the incidental questions raised above
may be answered as follows:
***
(v) The next question to be answered is what is
the effect on the order of punishment when the
report of the enquiry officer is not furnished to the
employee and what relief should be granted to
him in such cases. The answer to this question has
to be relative to the punishment awarded. When
the employee is dismissed or removed from
service and the inquiry is set aside because the
report is not furnished to him, in some cases the
nonfurnishing of the report may have prejudiced
him gravely while in other cases it may have made
no difference to the ultimate punishment awarded
to him. Hence to direct reinstatement of the
employee with back wages in all cases is to reduce
the rules of justice to a mechanical ritual. The
theory of reasonable opportunity and the
principles of natural justice have been evolved to
uphold the rule of law and to assist the individual
to vindicate his just rights. They are not
incantations to be invoked nor rites to be
performed on all and sundry occasions. Whether
in fact, prejudice has been caused to the employee
or not on account of the denial to him of the
report, has to be considered on the facts and
circumstances of each case. Where, therefore,
even after the furnishing of the report, no
different consequence would have followed, it
would be a perversion of justice to permit the
employee to resume duty and to get all the
consequential benefits. It amounts to rewarding
the dishonest and the guilty and thus to stretching
the concept of justice to illogical and exasperating
limits. It amounts to an ‘unnatural expansion of
natural justice’ which in itself is antithetical to
justice.”
44. At the same time, it cannot be denied that as far as
courts are concerned, they are empowered to consider
as to whether any purpose would be served in
remanding the case keeping in mind whether any
prejudice is caused to the person against whom the
action is taken. This was so clarified in ECIL (1993) 4
SCC 727 itself in the following words: (SCC p. 758, para
31)
“31. Hence, in all cases where the enquiry officer's
report is not furnished to the delinquent employee
26
in the disciplinary proceedings, the courts and
tribunals should cause the copy of the report to be
furnished to the aggrieved employee if he has not
already secured it before coming to the
court/tribunal and given the employee an
opportunity to show how his or her case was
prejudiced because of the nonsupply of the
report. If after hearing the parties, the
court/tribunal comes to the conclusion that the
nonsupply of the report would have made no
difference to the ultimate findings and the
punishment given, the court/tribunal should not
interfere with the order of punishment. The
court/tribunal should not mechanically set aside
the order of punishment on the ground that the
report was not furnished as is regrettably being
done at present. The courts should avoid resorting
to short cuts. Since it is the courts/tribunals which
will apply their judicial mind to the question and
give their reasons for setting aside or not setting
aside the order of punishment, (and not any
internal appellate or revisional authority), there
would be neither a breach of the principles of
natural justice nor a denial of the reasonable
opportunity. It is only if the court/tribunal finds
that the furnishing of the report would have made
a difference to the result in the case that it should
set aside the order of punishment.”
45.Keeping in view the aforesaid principles in mind,
even when we find that there is an infraction of
principles of natural justice, we have to address a
further question as to whether any purpose would be
served in remitting the case to the authority to make
fresh demand of amount recoverable, only after issuing
notice to show cause to the appellant. In the facts of the
present case, we find that such an exercise would be
totally futile having regard to the law laid down by this
Court in R.C. Tobacco (P) Ltd. v. Union of India (2005) 7
SCC 725.
47. In Escorts Farms Ltd. v. Commr.(2004) 4 SCC 281,
this Court, while reiterating the position that rules of
natural justice are to be followed for doing substantial
justice, held that, at the same time, it would be of no use
if it amounts to completing a mere ritual of hearing
without possibility of any change in the decision of the
case on merits. It was so explained in the following
terms: (SCC pp. 30910, para 64)
“64. Right of hearing to a necessary party is a
valuable right. Denial of such right is serious
breach of statutory procedure prescribed and
violation of rules of natural justice. In these
27
appeals preferred by the holder of lands and some
other transferees, we have found that the terms of
government grant did not permit transfers of land
without permission of the State as grantor.
Remand of cases of a group of transferees who
were not heard, would, therefore, be of no legal
consequence, more so, when on this legal question
all affected parties have got full opportunity of
hearing before the High Court and in this appeal
before this Court. Rules of natural justice are to be
followed for doing substantial justice and not for
completing a mere ritual of hearing without
possibility of any change in the decision of the
case on merits. In view of the legal position
explained by us above, we, therefore, refrain from
remanding these cases in exercise of our
discretionary powers under Article 136 of the
Constitution of India.”
35.The aforementioned view that in a case where the
facts are admitted and no amount of explanation can
change the ultimate result — the same being a fait
accompli, a Division Bench of this Court has in its recent
judgment in Krishna Nand Rai Vs. State of U.P. and
others
28
held that no purpose would be served in
remitting the matter back to the authority for decision
afresh after providing opportunity of hearing to the
petitioner, inasmuch as the defect was incurable.
36.In the facts of the present case, the petitioner does
not dispute the fact that he had been duly served upon
with a notice calling upon him to submit an explanation
with regard to his disqualification as per terms of the
eligibility criteria prescribed under the guidelines
contained in the relevant government order. The
petitioner has also not disputed the fact that his mother
was indeed the owner of a rice mill and accordingly as per
terms of the eligibility criteria he was not eligible. It has
also not been denied that the declaration made by him in
28 WritC No. 13427 of 2020, decided on 29.09.2020
28
the affidavit filed along with his application while
participating in etender in this regard was not correct. In
view of the aforesaid facts, the contention sought to be
raised on behalf of the petitioner that the opportunity
granted was not reasonable, is not tenable.
37.We may reiterate that in a case of a mere technical
infraction of principles of natural justice where the facts
are admitted and undisputed and no prejudice can be
demonstrated, there is a considerable case law and
literature for the proposition that relief can be refused if
the Court thinks that the case of the petitioner is not one
of 'real substance' or that there is no substantial possibility
of his success or that the result would not be different,
even if fresh opportunity is to be granted.
38.It would be in such situation that 'useless formality
theory' may be pressed into if it would be reasonable to
believe that a fair hearing would make no difference or
that grant of a fresh opportunity of hearing would not
change the ultimate conclusion to be reached by the
decision maker. In such situations, in our view, there
would be no legal duty to grant a fresh opportunity of
hearing and it may not be necessary to strike down the
action and remit the matter back to the authority
concerned to take a fresh decision.
39.In our view, every violation of a facet of natural
justice may not always lead to the conclusion that order
passed is always null and void. The validity of the order is
to be tested on the touchstone of 'prejudice' and in a case
where the petitioner is not able to demonstrate real
likelihood or certainty of prejudice, this Court may refuse
to exercise its discretionary jurisdiction to interfere in the
29
matter.
40.As regards the question whether the blacklisting can
be for an indefinite period, we may reiterate that though
blacklisting or debarment is recognised as an effective tool
for disciplining deviant contractors but the debarment is
never to be a permanent nature. In this regard, we may
refer to the observations made in the judgment of the M/s
Kulja Industries Limited vs. Chief General Manager,
W.T. Project, BSNL & Ors.
7
, which are as follows :
“25. Suffice it to say that ‘debarment’ is recognised and
often used as an effective method for disciplining
deviant suppliers/contractors who may have committed
acts of omission and commission or frauds including
misrepresentations, falsification of records and other
breaches of the regulations under which such contracts
were allotted. What is notable is that the ‘debarment’ is
never permanent and the period of debarment would
invariably depend upon the nature of the offence
committed by the erring contractor.”
41.The aforementioned legal position that blacklisting
or debarment for an indefinite period was not permissible
in law was reiterated in B.C. Biyani Projects Pvt. Ltd. Vs.
State of M.P. & Ors.
29
and also the judgments of this
Court in M/s. Vindhyawasini T. Transport Vs. State of
U.P. and others
1
and M/s Baba Traders Vs. State of U.P.
and others
19
.
42.Although, the order impugned in the present case
does not provide for a specific time period for which the
petitioner has been blacklisted, it is worthwhile to take
notice of the fact that the disability or ineligibility of the
petitioner to be awarded the contract in view of the
undisputed fact that his mother is the owner of a rice mill
7 (2014) 14 SCC 731
29 2017 (3) AWC 2840 (SC)
1 2018 (4) ADJ 40 (DB)
19 2019 (11) ADJ 516 (DB)
30
would continue as long as there is no variation in the
eligibility criteria contained under the policy guidelines
issued in terms of the relevant government orders. In the
event, the eligibility criteria are varied or modified at a
subsequent point of time and the petitioner comes within
the prescribed eligibility criteria, it would always be open
to him to apply before the authority concerned for
withdrawing the order of blacklisting.
43.Subject to the aforesaid observations, the petition
stands dismissed.
Order Date : 30.9.2020
Pratima
(Dr. Y.K. Srivastava,J.) (Manoj Kumar Gupta,J.)
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