Heard Sri B.K. Srivastava, learned Senior Counsel assisted by Sri Dhiraj Srivastava, learned counsel for the petitioner and Sri K.R. Singh, learned counsel appearing for the second, third and the ...
No Acts & Articles mentioned in this case
AFR
Court No. 21
Case : WRIT C No. 30556 of 2019
Petitioner : M/S Baba Traders
Respondent : State Of U.P. And 3 Others
Counsel for Petitioner : Dhiraj Srivastava,Sri B.K. Srivastava
(Sr. Adv.)
Counsel for Respondent : C.S.C.,K.R. Singh
Hon'ble Pradeep Kumar Singh Baghel,J.
Hon'ble Dr. Yogendra Kumar Srivastava,J.
(Per : Dr. Yogendra Kumar Srivastava,J.)
1.Heard Sri B.K. Srivastava, learned Senior Counsel assisted
by Sri Dhiraj Srivastava, learned counsel for the petitioner and
Sri K.R. Singh, learned counsel appearing for the second, third
and the fourth respondents.
2.The present petition seeks to challenge the order dated
13.05.2019 passed by the third respondent/Vice Chairman,
Gorakhpur Development Authority, Gorakhpur whereby the
petitioner has been blacklisted for the purposes of allotment of
contract of work by the Gorakhpur Development Authority and a
penalty of Rs.20 lacs has been imposed. A further prayer is made
for disposal of a representation made in this regard by the
petitioner before the third respondent.
3.The facts of the case, as per the pleadings in the writ
petition, in brief, are that the petitioner is a contractor registered
with the Gorakhpur Development Authority engaged for the
purposes of construction work for the past several years, and was
directed by the respondent authorities to complete the work of
construction of a culvert on a drain on urgent basis. It has been
averred that after completion of the work some of the bricks
used temporarily for supporting the concrete remained left over,
and taking that to be the basis the impugned order dated
13.05.2019 has been passed by the third respondent blacklisting
the petitioner permanently and imposing Rs.20 lacs as penalty
Neutral Citation No. 2019:AHC:164962DB
2
WritC No.30556 of 2019
for the alleged use of old bricks in the construction work.
4.With the consent of the parties the writ petition is taken up
for disposal as per the Rules of the Court.
5.Contention of the learned Senior Counsel appearing for the
petitioner is that the impugned order of blacklisting dated
13.05.2019 has been passed against the petitioner without giving
any show cause notice and opportunity of hearing hence the
same is in gross violation of principles of natural justice.
6.It has been pointed out that the order of blacklisting which
has been passed is not for any specified period of time and any
such order having a permanent effect is not sustainable. It is also
submitted that the impugned order does not refer to any enquiry
which could be said to form basis of the order of blacklisting and
that the effect of the order is not only stigmatic but it also has
adverse civil consequences and as such cannot be legally
sustained.
7.Sri K.R. Singh, learned counsel appearing for the second,
third and the fourth respondents has not been able to point out
from the order impugned that the same has been passed
pursuant to any fact finding enquiry or that the petitioner was
given any show cause notice or opportunity of hearing before
passing of the order of blacklisting. There is no material on
record to show that the principles of natural justice were
complied with before passing of the order.
8.In order to appreciate the contentions of the parties we
may advert to the meaning of “blacklist” and “blacklisting” and
in this regard reference may be drawn to the enunciation of the
aforementioned terms in the legal dictionaries.
9.The term “blacklist” has been defined in Black's Law
Dictionary
1
in the following manner:
1Black's Law Dictionary, 9
th
Edition
3
WritC No.30556 of 2019
“To put the name of (a person) on a list of those who are to be
boycotted or punished.”
10.Wharton's Law Lexicon
2
refers to the term “blacklist” as
follows:
“The term given to any list of persons with whom the person or
body compiling the list advises no one should have dealings of
the character indicated. Thus the list of defaulters on the Stock
Exchange is so named, and various societies and individuals
also publish lists with a similar purpose.”
11.The terms “blacklist” and “blacklisting” have been
described in Advanced Law Lexicon by P. Ramanatha Aiyar
3
in
the following manner:
“Black list is a list of persons or firms against whom its
compiler would warn the public, or some section of the public;
a list of persons unworthy of credit, or with whom it is not
advisable to make contracts. Thus, the official list of defaulters
on the Stock Exchange is a blacklist. To put a man's name on
such a blacklist without lawful causes is actionable; and the
further publication of such a list will be restrained by
injunction. A list of persons, firms companiesbycotted or
punished.”
“Blacklisting is a part of the paraphernalia of strike. It may be
said to represent the malignant hate and revenge of the parties
resorting to it. In its purpose and effects it is closely allied to a
boycott. A “blacklist” is defined to be a list of the persons
marked out for special avoidance, antagonism, and enmity on
the part of those who prepare the list or those among whom it
is intended to circulate, as where a trade union blacklists
workmen who refuse to conform to it rules; but it is most
usually resorted to by combined employers, who exchange lists
of their employees who go on strikes, with the agreement that
none of them will employ the workmen whose names are on
the lists, and comes within the meaning of what is termed a
'conspiracy'.
List of companies, products or people that are undesirable and
to be avoided. In the USA the term means more specifically the
denial of work to certain people on the grounds of their past
beliefs or actions.”
12.In the celebrated case of Quinn Vs. Leathem
4
which is a
case on economic tort and relates to the tort of "conspiracy to
injure", it was stated by Lord Lindley, as follows:
“...Black lists are real instruments of coercion, as every man
2Wharton's Law Lexicon, 17
th
Edition
3Advanced Law Lexicon by P. Ramanatha Aiyar Volume 1, 6
th
Edition
4(1901) UKHL 2
4
WritC No.30556 of 2019
whose name is on one soon discovers to his cost,...”
13.The issue with regard to the entitlement to a notice to be
heard before blacklisting came up in the case of M/s Erusian
Equipment & Chemicals Ltd. Vs. State of West Bengal & Anr.
5
and referring to the powers of the State under Article 298 of the
Constitution of India
6
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
5(1975) 1 SCC 70
6the Constitution
5
WritC No.30556 of 2019
may be proper, necessary and essential to his lawful calling.
15. The blacklisting order does not pertain to any 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 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.
6
WritC No.30556 of 2019
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.”
14.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.
7
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 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...”
15.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
7(1989) 1 SCC 229
7
WritC No.30556 of 2019
to enter or not into a contract came up for consideration in the
case of Mahabir Auto Stores & Ors. Vs. Indian Oil
Corporation & Ors.
8
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 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
8(1990) 3 SCC 752
8
WritC No.30556 of 2019
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 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.”
9
WritC No.30556 of 2019
16.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.
9
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.
17.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
made in this regard in the case of M/s Kulja Industries Limited
Vs. Chief General Manager, W.T. Project, BSNL & Ors.
10
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.”
18.The aforementioned judgment has taken note of the fact
that the principle of audi alteram partem has been held to be
9AIR 2001 SC 3707
10(2014) 14 SCC 731
10
WritC No.30556 of 2019
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.
11
, Patel Engineering Ltd. Vs. Union of India
12
,
B.S.N. Joshi & Sons Ltd. Vs. Nair Coal Services Ltd. & Ors.
13
,
Joseph Vilangandan Vs. The Executive Engineer (PWD),
Ernakulam & Ors.
14
.
19.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.
15
, E.P. Royappa Vs.
State of Tamil Nadu & Anr.
16
, Maneka Gandhi Vs. Union of
India & Anr.
17
, Ajay Hasia & Ors. Vs. Khalid Mujib Sehravardi
& Ors.
18
, Ramana Dayaram Shetty Vs. International Airport
Authority of India & Ors.
19
and Dwarkadas Marfatia and Sons
Vs. Board of Trustees of the Port of Bombay
20
.
20.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. It was
also taken note of that though “debarment” is recognised as an
effective tool for disciplining deviant contractors but the
debarment is never permanent. The observations made in the
111994 Supp (2) SCC 699
12(2012) 11 SCC 257
13(2006) 11 SCC 548
14(1978) 3 SCC 36
15(1977) 3 SCC 457
16(1974) 4 SCC 3
17(1978) 1 SCC 248
18(1981) 1 SCC 722
19(1979) 3 SCC 489
20(1989) 3 SCC 293
11
WritC No.30556 of 2019
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 non
responsible, lack business integrity or engage in dishonest or
illegal conduct or are otherwise 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 conduct similar to one or more of the causes for
debarment specified in this part.
12
WritC No.30556 of 2019
(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.”
23. As regards the period for which the order of debarment will
remain effective, the guidelines state that the same would
depend upon the seriousness of the case leading to such
debarment.
24. Similarly in England, Wales and Northern Ireland, there are
statutory provisions that make operators ineligible on several
grounds including fraud, fraudulent trading or conspiracy to
defraud, bribery etc.
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.”
21.In Patel Engineering Ltd. Vs. Union of India
8
, 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
8(2012) 11 SCC 257
13
WritC No.30556 of 2019
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. 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.”
22.The applicability of the principle of audi alteram partem
and the necessity of issuance of a show cause notice before
passing of an order of blacklisting and the prejudice caused for
the reason of failure of giving notice was reiterated in Gorkha
14
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Security Services Vs. Government (NCT of Delhi) & Ors.
21
,
and it was stated as follows:
“16. It is a common case of the parties that the blacklisting has
to be preceded by a show cause notice. Law in this regard is
firmly grounded and does not even demand much
amplification. The necessity of compliance with the principles
of natural justice by giving the opportunity to the person
against whom action of blacklisting is sought to be taken has a
valid and solid rationale behind it. With blacklisting many civil
and/or evil consequences follow. It is described as “civil death”
of a person who is foisted with the order of blacklisting. Such
an order is stigmatic in nature and debars such a person from
participating in government tenders which means precluding
him from the award of government contracts.
17. Way back in the year 1975, this Court in Erusian Equipment
& Chemicals Ltd. v. State of W.B. [(1975) 1 SCC 70],
highlighted the necessity of giving an opportunity to such a
person by serving a show cause notice thereby giving him
opportunity to meet the allegations which were in the mind of
the authority contemplating blacklisting of such a person...
x x x x x
20. ...there is no dispute about the requirement of serving
showcause notice. We may also hasten to add that once the
showcause notice is given and opportunity to reply to the
showcause notice is afforded, it is not even necessary to give
an oral hearing. The High Court has rightly repudiated the
appellant's attempt in finding foul with the impugned order on
this ground. Such a contention was specifically repelled in Patel
Engineering (supra).
Contents of showsause notice
21. The central issue, however, pertains to the requirement of
stating the action which is proposed to be taken. The
fundamental purpose behind the serving of showcause notice
is to make the noticee understand the precise case set up
against him which he has to meet. This would require the
statement of imputations detailing out the alleged breaches and
defaults he has committed, so that he gets an opportunity to
rebut the same. Another requirement, according to us, is the
nature of action which is proposed to be taken for such a
breach. That should also be stated so that the noticee is able to
point out that proposed action is not warranted in the given
case, even if the defaults/breaches complained of are not
satisfactorily explained. When it comes to black listing, this
requirement becomes all the more imperative, having regard to
the fact that it is harshest possible action.
22. The High Court has simply stated that the purpose of show
cause notice is primarily to enable the noticee to meet the
grounds on which the action is proposed against him. No doubt,
the High Court is justified to this extent. However, it is equally
21(2014) 9 SCC 105
15
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important to mention as to what would be the consequence if
the noticee does not satisfactorily meet the grounds on which
an action is proposed. To put it otherwise, we are of the
opinion that in order to fulfil the requirements of principles of
natural justice, a show cause notice should meet the following
two requirements viz:
(i) The material/grounds to be stated on which according to
the Department necessitates an action;
(ii) Particular penalty/action which is proposed to be taken. It
is this second requirement which the High Court has failed to
omit.
we may hasten to add that even if it is not specifically
mentioned in the show cause notice but it can be clearly and
safely be discerned from the reading thereof, that would be
sufficient to meet this requirement.
x x x x x
27. We are, therefore, of the opinion that it was incumbent on
the part of the Department to state in the show cause notice
that the competent authority intended to impose such a penalty
of blacklisting, so as to provide adequate and meaningful
opportunity to the appellant to show cause against the same.
However, we may also add that even if it is not mentioned
specifically but from the reading of the show cause notice, it
can be clearly inferred that such an action was proposed, that
would fulfill this requirement...
x x x x x
29. No doubt, rules of natural justice are not embodied rules
nor can they be lifted to the position of fundamental rights.
However, their aim is to secure justice and to prevent
miscarriage of justice. It is now well established proposition of
law that unless a statutory provision either specifically or by
necessary implication excludes the application of any rules of
natural justice, in exercise of power prejudicially affecting
another must be in conformity with the rules of natural justice.
30. We are conscious of the following words of wisdom
expressed by this Court through the pen of Krishna Iyer, J. in
Board of Mining Examination v. Ramjee (1977) 2 SCC 256 (pp.
258 & 262, paras 1, 13 & 14)
“1. If the jurisprudence of remedies were understood and
applied from the perspective of social efficaciousness, the
problem raised in this appeal would not have ended the
erroneous way it did in the High Court. Judges must never
forget that every law has a social purpose and engineering
process without appreciating which justice to the law cannot
be done. Here, the sociolegal situation we are faced with is a
colliery, an explosive, an accident, luckily not lethal, caused
by violation of a regulation and consequential cancellation of
the certificate of the delinquent shotfirer, eventually quashed
by the High Court, for processual solecisms, by a writ of
certiorari.
x x x x x
13. Natural justice is no unruly horse, no lurking land mine,
16
WritC No.30556 of 2019
nor a judicial cure all. If fairness is shown by the decision
maker to the man proceeded against, the form, features and
the fundamentals of such essential processual propriety being
conditioned by the facts and circumstances of each situation,
no breach of natural justice can be complained of. Unnatural
expansion of natural justice, without reference to the
administrative realities and other factors of a given case, can
be exasperating. We can neither be finical nor fanatical but
should be flexible yet firm in this jurisdiction. No man shall be
hit below the belt – that is the conscience of the matter.
14. ...we cannot look at law in the abstract or natural justice
as a mere artefact. Nor can we fit into a rigid mould the
concept of reasonable opportunity.”
31. When it comes to the action of blacklisting which is termed
as “civil death” it would be difficult to accept the proposition
that without even putting the noticee to such a contemplated
action and giving him a chance to show cause as to why such
an action be not taken, final order can be passed blacklisting
such a person only on the premise that this is one of the actions
so stated in the provisions of NIT.
The “prejudice” argument
32. It was sought to be argued by Mr. Maninder Singh, learned
Additional Solicitor General appearing for the respondent, that
even if it is accepted that showcause notice should have
contained the proposed action of blacklisting, no prejudice was
caused to the appellant in as much as all necessary details
mentioning defaults/prejudices committed by the appellant
were given in the showcause notice and the appellant had even
given its reply thereto. According to him, even if the action of
blacklisting was not proposed in the showcause notice, reply of
the appellant would have remained the same. On this premise,
the learned Additional Solicitor General has argued that there is
no prejudice caused to the appellant by nonmentioning of the
proposed action of blacklisting. He argued that unless the
appellant was able to show that nonmentioning of blacklisting
as the proposed penalty has caused prejudice and has resulted
in miscarriage of justice, the impugned action cannot be
nullified. For this proposition he referred to the judgment of
this Court in Haryana Financial Corpn. v. Kailash Chandra
Ahuja (2008) 9 SCC 31 (pp. 38, 4041, & 44, paras 21, 31, 36
& 44)
“21. From the ratio laid down in ECIL v. B. Karunakar (1993)
4 SCC 727 it is explicitly clear that the doctrine of natural
justice requires supply of a copy of the inquiry officer’s report
to the delinquent if such inquiry officer is other than the
disciplinary authority. It is also clear that nonsupply of report
of the inquiry officer is in the breach of natural justice. But it
is equally clear that failure to supply a report of the inquiry
officer to the delinquent employee would not ipso facto result
in the proceedings being declared null and void and the order
of punishment non est and ineffective. It is for the delinquent
employee to plead and prove that nonsupply of such report
had caused prejudice and resulted in miscarriage of justice. If
17
WritC No.30556 of 2019
he is unable to satisfy the court on that point, the order of
punishment cannot automatically be set aside.
x x x x x
31. At the same time, however, effect of violation of the rule
of audi alteram partem has to be considered. Even if hearing
is not afforded to the person who is sought to be affected or
penalised, can it not be argued that 'notice would have served
no purpose' or 'hearing could not have made difference' or 'the
person could not have offered any defence whatsoever'. In this
connection, it is interesting to note that under the English law,
it was held few years before that noncompliance with
principles of natural justice would make the order null and
void and no further inquiry was necessary.
x x x x x
36. The recent trend, however, is of 'prejudice'. Even in those
cases where procedural requirements have not been complied
with, the action has not been held ipso facto illegal, unlawful
or void unless it is shown that non observance had
prejudicially affected the applicant.
x x x x x
44. From the aforesaid decisions, it is clear that though supply
of report of the inquiry officer is part and parcel of natural
justice and must be furnished to the delinquent employee,
failure to do so would not automatically result in quashing or
setting aside of the order or the order being declared null and
void. For that, the delinquent employee has to show
'prejudice'. Unless he is able to show that nonsupply of report
of the inquiry officer has resulted in prejudice or miscarriage
of justice, an order of punishment cannot be held to be
vitiated. And whether prejudice had been caused to the
delinquent employee depends upon the facts and
circumstances of each case and no rule of universal
application can be laid down.”
33. When we apply the ratio of the aforesaid judgment to the
facts of the present case, it becomes difficult to accept the
argument of the learned Additional Solicitor General. In the
first instance, we may point out that no such case was set up by
the respondents that by omitting to state the proposed action of
blacklisting, the appellant in the showcause notice has not
caused any prejudice to the appellant. Moreover, had the action
of blacklisting being specifically proposed in the showcause
notice, the appellant could have mentioned as to why such
extreme penalty is not justified. It could have come out with
extenuating circumstances defending such an action even if the
defaults were there and the Department was not satisfied with
the explanation qua the defaults. It could have even pleaded
with the Department not to blacklist the appellant or do it for a
lesser period in case the Department still wanted to black list
the appellant. Therefore, it is not at all acceptable that non
mentioning of proposed blacklisting in the showcause notice
has not caused any prejudice to the appellant. This apart, the
extreme nature of such a harsh penalty like blacklisting with
severe consequences, would itself amount to causing prejudice
to the appellant.”
18
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23.In B.C. Biyani Projects Pvt. Ltd. Vs. State of M.P. &
Ors.
22
referring to the earlier judgment in the case of M/s Kulja
Industries Limited it was held that an order of blacklisting for
an indefinite period was not permissible in law. The observations
made in the judgment in this regard are as follows:
“7. In Kulja Industries Limited v. Chief General Manager,
Western Telecom Project Bharat Sanchar Nigam Limited and
others, (2014) 14 SCC 731, this Court held in paragraph 25 of
the report that “debarment” cannot be permanent and the
period of “debarment” would invariably depend upon the
nature of the offence committed by the erring contractor.
Paragraph 25 of the report reads 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.”
8. As mentioned above, the order for blacklisting the appellant
is a permanent one. This is impermissible in law.”
24.It would be apposite to refer to a Full Bench judgment of
the Kerala High Court in the case of V. Punnen Thomas Vs.
State of Kerala
23
as an interesting stage in the course of
development of law on the subject wherein it was held by a
majority view that the Government can refuse to deal with any
person without giving reason or for any reason it thinks fit and
the principle of audi alterm partem would not be attracted.
25.Justice Mathew (as he then was) gave a dissenting view
stating as follows:
“14. Government has right like any private citizen to enter into
contracts with any person it chooses and no person has a right
fundamental or otherwise to insist that Government must enter
into a contractual relation with him. See 1958 Ker LT
334=(AIR 1958 Ker 333). In AIR 1959 SC 490 the Supreme
Court observed;
"There is no discrimination, because it is perfectly open to the
Government, even as it is to a private party, to choose a
222017 (3) AWC 2840 (SC)
23AIR 1969 Ker 81 (FB)
19
WritC No.30556 of 2019
person to their liking to fulfil contracts which they wish to be
performed."
In that case, there was no question of the legality of putting a
person's name in blacklist. The only question was whether for
breach of a contract by Government, the remedy of the
petitioner there, was to approach the Supreme Court under
Article 32 of the Constitution. A citizen, I think, has the right
"to earn his livelihood by any lawful calling; to pursue any
livelihood or avocation; and for that purpose to enter into all
contracts which may be proper, necessary, and essential to his
carrying out to a successful conclusion the purposes above
mentioned ......... In the privilege of pursuing an ordinary
calling or trade, and of acquiring, holding and selling property,
must be embraced the right to make all proper contracts in
relation thereto". (See Allgeyar v. State of Louisiana. (1897)
165 US 578, 589, 591).
15. A contractual relationship presupposes a consensus of two
minds. If Government is not willing to enter into contract with
a person, I do not think that Government can be forced to do
so. It is one thing to say that Government, like any other private
citizen, can enter into contract with any person it pleases, but a
totally different thing to say that government can unreasonably
put a person's name in a blacklist and debar him from entering
into any contractual relationship with the government for years
to come. In the former case, it might be said that Government is
exercising its right like any other private citizen, 'but no,
democratic government should with impunity pass a
proceeding which will have civil consequences to a citizen
without notice and an opportunity of being heard. The reason
why the proceeding for blacklisting the petitioner and
debarring him from taking government work for ten years was
passed, is that he committed irregularities in connection with
the tender of the contract work...”
26.An ex parte adverse adjudication without notice and
opportunity of being heard and putting the petitioner on the
blacklist and debarring him from work by way of punishment
was held to be against all notions on fairness in a democratic
country and in this regard the observations made by
Frankfurter, J. in Joint Anti Fascist Refugee Com. Vs.
McGrath
24
which were referred to are being extracted below:
“That a conclusion satisfies one's private conscience does not
attest its reliability. The validity and moral authority of a
conclusion largely depend on the mode by which it was
reached. Secrecy is not congenial to truthseeking and self
righteousness gives too slender an assurance of lightness. No
better instrument has been devised for arriving at truth than to
24(1951) 341 US 123
20
WritC No.30556 of 2019
give a person in jeopardy of serious loss, notice of the case
against him and opportunity to meet it. Nor has a better way
been found for generating the feeling, so important to a
popular Government, that justice has been done.”
27.The minority judgment further referred to the article of
Kenneth Culp Davis under the title “The Requirement of a
TrialType Hearing”
25
to draw the inference that apart from the
material damage involved in the loss of the prospect of entering
into the advantageous relationship with Government, a verdict of
being guilty of irregularities, coming from the Government has
civil consequences as it touches the reputation and standing of
the contractor in the business world. The passages of the article,
which have been referred, are being extracted below:
“The plain fact is that the Courts often give legal protection to
what they persist in calling 'privileges'. In doing so they
commonly rely upon one or more of three ideas or on a fourth
method which involves the lack of an idea. The three ideas are:
(1) that constitutional principles of substantive and procedural
fairness apply even when only a privilege is at stake and even
when the privilege itself is not directly entitled to legal
protection; (2) that privileges as well as rights are entitled to
legal protection; and (3) that when a privilege is combined
with another interest the combination may be a right and
accordingly entitled to legal protection. The remaining method
is (4) to cast logic to the winds in discussing right and privilege
or to provide legal protection to a privilege without mentioning
the problem of privilege.
(1) the essence of the first idea is that the government is still
the government even when it is dispensing bounties, gratuities,
or privileges, that we want the government to be fair no matter
what its activities may be, and that often the best way to assure
governmental fairness is by relying upon judicial enforcement
of the usual concepts of fairness. Therefore, the basic
constitutional Limitations having to do with fairness often apply
even though the privileges as such are not entitled to legal
protection.
But if a right is an interest which is legally protected, and if a
Court gives legal protection to a privilege, does not the Court
turn the privilege into a right? Even if the answer to this
question is yes, the proposition still be perfectly sound that one
who lacks a 'right' to a Government gratuity may nevertheless
have a 'right' to fair treatment in the distribution of the gratuity.
In tort law, the accident victim has no right to be helped by the
passerby who volunteers to help. Like the passerby, the
25Harvard Law Review Volume 70 page 193 at p. 225
21
WritC No.30556 of 2019
Government may refuse altogether to help applicants for
gratuities, but it cannot provide the help improperly; it cannot
grant or withhold on the basis of racial or religious
discrimination. The federal Government could deny altogether
the admission of Oklahoma to the union, but it could not admit
Oklahoma improperly, that is with a condition that its capital
must be at a particular place. A State can deny altogether a
permit to a foreign corporation to do local business, but it
cannot grant the privilege improperly, that is, on condition that
suits against the corporation shall not be removed to a federal
Court."
"Similarly, one who has no 'right' to sell liquor, in the sense that
the State may prohibit the sale of liquor altogether, may
nevertheless have a right to fair treatment when State officers
grant, deny, suspend, or revoke liquor licences, The State need
not grant any such licences, but if it does so, it must do so fairly
— without racial or religious discrimination, and without unfair
procedure."
"The fundamental proposition, stated abstractly, is that some
kinds of unfairness are deemed deserving of judicial relief even
when they appear in a context of privileges or gratuities. This
proposition appears frequently in judicial opinions.”
"Even though one may have no right to a Government gratuity
one may have a right to be free from damage to reputation or
position that may result from withholding of a Government
gratuity in some circumstances.”
28.Viewing reputation both as an interest of personality and
as an interest of substance i.e. as an asset, the following passage
from “Code of Actionable Defamation”
26
was extracted in the
judgment, and the same is being reproduced below:
“It may be granted that reputation in many respects differs
from other forms of property and connotes certain ideas
involved in the notion of 'person' or 'personality', for ........ it is
certainly a very special and strictly personal type of asset: it has
some analogies, no doubt, to the right of the individual to his
life, his limbs, or his liberty, which are all only 'property' in a
somewhat metaphorical sense. ......... In so far, however, as
individual honour, dignity, character, and reputation are
recognised by the law as proper subjects of its protection and as
being such that any injury thereto entitles the aggrieved party
to the same forms of legal redresses as the invasion of property
strictly so called, it is permissible to consider these rights as
assets, though assets of a somewhat peculiar description.”
29.Further, the extract from the article “Interest of
Personality” by Roscoe Pound
27
, which was referred, is being
26Code of Actionable Defamation by Spencer Bower
27Harvard Law Review, pages 445 and 447
22
WritC No.30556 of 2019
reproduced below:
“On the one hand there is the claim of the individual to be
secured in his dignity and honour as part of his personality in a
world in which one must live in society among his fellow men.
On the other hand there is the claim to be secured in his
reputation as a part of his substance, in that in a world in which
credit plays so large a part the confidence and esteem of one's
fellowmen may be a valuable asset.”
30.With regard to the exercise of power of “debarment”
having a serious effect and being attended with civil
consequences, reference was drawn to Australian Law Journal
Volume 49
28
, to state that the ultimate question was:
"whether an exercise of the power would have a 'serious' effect
on the applicant, and whether an exercise of the power was
conditional on some factual determination or evaluation rather
than being a completely open discretion based on policy".
31.The scope of exercise of powers by the Government in
selecting the recipients for largess and the conferment of
privileges was also considered and it was stated as follows:
“The concept of privilege, gratuity, or grace is useful; we
probably would invent it if our legal system were without it.
Like an individual, the Government may make generous gifts,
perform compassionate acts of grace, and legally recognise as
privileges such interests as deserve to be something less than
legal rights. A donee ought not to be allowed to compel the
Government to make a gift. Nor should a supplicant for an act
of grace be permitted to coerce officers to make a favourable
determination in the exercise of discretionary power. Even so,
the Government is not and should not be as free as an
individual in selecting the recipients for largess. Whatever its
activity the Government is still the Government and will be
subject to restraints, inherent in its position in a democratic
society. A democratic Government cannot lay down arbitrary
and capricious standards for the choice of persons with whom
alone it will deal.”
32.In this regard reference was drawn to “Summary of
Colloquy on Administrative Law” by Walter Gellhorn
29
, and
the extract which was referred, is being reproduced below:
“A 'privilege' is not something to be dealt with lightly. Much of
modern life, it may be said, depends on the continued
enjoyment of a 'privilege'.”
28Australian Law Journal Volume 49 page 129
29The Journal of the Society of Public Teachers of Law, June 1961, page 70 at 72
23
WritC No.30556 of 2019
33.Finally, Justice Mathew in his minority judgment drew the
following conclusion:
“As the memorandum in question casts a stigma on the
reputation of the petitioner, which is both an interest of
personality and an interest of substance, and as it is attended
with civil consequences to the petitioner, and as it operates as a
punishment for an alleged irregularity, I think, the
memorandum should have been proceeded by notice and an
opportunity of being heard. If anybody were to say that Ext. P1
is an administrative proceeding and so no notice or opportunity
of being heard was required and that no interference under
Article 226 is possible, I would answer him in the high and
powerful words of Mr. Belloc, "you have mistaken the hour of
the night: it is already morning"...”
34.The question with regard to applicability of the principle of
audi alterem partem in a matter of blacklisting of a contractor
without notice by the government fell for consideration in
Joseph Vilangandan Vs. The Executive Engineer (PWD),
Ernakulam & Ors.
14
in a case where a petition challenging the
order of blacklisting had been dismissed by a learned Single
Judge of the High Court in the light of the majority decision by
the Full Bench in the case of V. Punnen Thomas (supra), and
the writ appeal filed there against had also been dismissed by the
Division Bench in limine. The Supreme Court, hearing the appeal
by special leave, upon considering the judgment in the case of
M/s Erusian Equipment & Chemicals Ltd. (supra) held that the
majority judgment in the case of V. Punnen Thomas must be
deemed to be overruled by the decision in the case of M/s
Erusian Equipment & Chemicals Ltd. The relevant observations
made in the judgment are as follows:
“17. The majority judgment of the Kerala High Court, inasmuch
as it holds that a person is not entitled to a hearing, before he is
blacklisted, must be deemed to have been overruled by the
decision of this Court in Erusian Equipments (ibid) wherein it
was held that (SCC p. 75, para 20) :
“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.”
14(1978) 3 SCC 36
24
WritC No.30556 of 2019
35.A similar view was reiterated in M/s Southern Painters
Vs. Fertilizers and Travancore Ltd. & Anr.
11
, and after referring
to the minority view of Justice Mathew in the case of V. Punnen
Thomas (supra), it was stated that the said minority view was
now the law. The observations made in the judgment are as
follows:
8. The minority view of Justice Mathew is now the law. The
majority view in V. Punnen Thomas case [V. Punnen Thomas
Vs. State of Kerala, AIR 1969 Ker 81 : 1968 Ker LT 800 : 1968
Ker LJ 619] is not good law and must be considered to have
been, impliedly, overruled by the Erusian case [Erusian
Equipment & Chemicals Ltd. v. State of W.B, (1975) 1 SCC 70,
75]. Indeed, in Joseph Vilangandan v. Executive Engineer,
Buildings & Roads (PWD) Division, Ernakulam [(1978) 3 SCC
36, 41 : (1978) 3 SCR 514, 518] it was held:
“The majority judgment of the Kerala High Court, inasmuch as
it holds that a person is not entitled to a hearing, before he is
blacklisted, must be deemed to have been overruled by the
decision of this Court in Erusian Equipment & Chemicals Ltd.
v. State of W.B, (1975) 1 SCC 70, 75] ….”
36.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.
37.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
111994 Supp (2) SCC 699
25
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to be supported by legality. The activities of the State having the
public element quality must be imbued with fairness and
equality.
38.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 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.
39.In the instant case order of blacklisting having been passed
without issuance of a show cause notice and opportunity of
hearing and having been made for an indefinite period would be
in clear violation of the principle of audi alterm partem, and
would be legally unsustainable.
40.Accordingly, the order impugned dated 13.05.2019 passed
by the third respondent/Vice Chairman, Gorakhpur Development
Authority, Gorakhpur whereby the petitioner has been
blacklisted, cannot be legally sustained and is therefore set aside.
41.The matter is remitted back to the third respondent leaving
it open to pass a fresh reasoned order after giving due notice and
opportunity to the petitioner in respect of the proposed action.
42.The writ petition is allowed to the extent indicated above.
Order Date : 27.9.2019
Shahroz
(Dr. Y.K. Srivastava,J.)(P.K.S. Baghel,J.)
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