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There should be intention on part of issuer to noticee for constituting a valid blacklisting order

For a show cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist the noticee. (Para 21)

UMC Technologies Private Limited v. Food Corporation of India And Anr.

Civil Appeal No. 3687 of 2020 (Arising out of S.L.P. (C) No. 14228 of 2019), 16th November, 2020.

Counsel for Appellant: Shri Gourab Banerji.

Counsel for Respondents: Shri Ajit Pudussery.

The Corporation had issued a Bid Document on 25.11.2016 inviting bids for appointment of a recruitment agency. The Appellant's bid was appointed for a period of 2 years for undertaking the tendered work of conducting recruitment of watchmen for the Corporation. The appellant conducted a written exam on 01.04.2018 for the post of watchman with the Corporation but on the same day 50 people were arrested in Gwalior for possession of certain handwritten documents which prima facie appeared to be the question papers related to the examination conducted by the appellant. The Corporation issued a show cause notice to the appellant which alleged that the appellant had breached various clauses of the Bid Document dated 25.11.2016 on the ground that it was the sole responsibility of the appellant to prepare and distribute the question papers as well as conduct the examination in a highly confidential manner. On 27.10.2018, the appellant submitted an Observation Report-cum-Reply/Explanation which compared the seized documents with the original question papers and contended that there was much dissimilarity between the two and thus there had been no leakage or dissemination of the original question papers. By its order dated 09.01.2019, the Corporation concluded that the shortcomings/negligence on part of the appellant stood established beyond any reasonable doubt and proceeded to terminate its contract with the appellant and also blacklisted the appellant from participating in any future tenders of the corporation for a period of 5 years. Aggrieved, the appellant filed a writ petition before the High Court which was dismissed.

The issue raised before this court based on the contentions is as follows:

Whether the Corporation was entitled to and justified in blacklisting the appellant for 5 years from participating in its future tenders.

The counsel for appellant has submitted that the appellant only seeks to contest the issue of blacklisting and not the termination of the contract between the appellant and the Corporation. Furthermore, he submits that Clause 10 of the Bid Document dated 25.11.2016 titled “Disqualifications Conditions”, which has been relied upon by the Corporation, merely lays down eligibility criteria and does not grant any power of future blacklisting. It was further alleged that the said clause was also not mentioned in the show cause notice dated 10.04.2018 issued by the Corporation. Thus, it was submitted that in the absence of a valid show cause notice, the consequent blacklisting order cannot be sustained. He further argued that due to the domino effect of the Corporation’s blacklisting of the appellant, the appellant has unreasonably suffered 5 punishments at the hands of the Corporation which is disproportionate and tantamount to the civil death of the appellant.

The counsel for respondents argued that due to the negligence of the appellant, the entire recruitment process had to be scrapped and the same has deprived several applicants of employment and undermined the confidence of the public in the recruitment process of the Corporation. In relation to the issue of blacklisting, he submitted that since the appellant had breached the terms of the contract by leaking the question papers for the examination, it was not in public interest to permit it to participate in future tenders. It was argued that since the blacklisting order was made as per the Bid Document and after granting ample time to reply to the show cause notice, the Corporation’s impugned blacklisting order dated 09.01.2019 cannot be challenged.

This Court in Nasir Ahmad v. Assistant Custodian General, Evacuee Property, Lucknow and Anr.,(1980) 3 SCC 1, has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the notice to answer the case against him. If the conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard. Specifically, in the context of blacklisting of a person or an entity by the state or a state corporation, the requirement of a valid, particularized and unambiguous show cause notice is crucial. The severity of the effects of blacklisting and the resultant need for strict observance of the principles of natural justice before passing an order of blacklisting were highlighted by this Court in Erusian Equipment & Chemicals Ltd. v. State of West Bengal (1975) 1 SCC 70. This Court in Gorkha Security Services v. Government (NCT of Delhi) and Ors. (2014) 9 SCC 105 has described blacklisting as being equivalent to the civil death of a person because blacklisting is stigmatic in nature and debars a person from participating in government tenders thereby precluding him from the award of government contracts.

Thus, from the above discussion, a clear legal position emerges that for a show cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist the noticee. Such a clear notice is essential for ensuring that the person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting. (Para 21)

The court held that

"After listing 12 clauses of the “Instruction to Bidders”, the notice merely contains a vague statement that in light of the alleged leakage of question papers by the appellant, an appropriate decision will be taken by the Corporation. While the notice clarified that the 12 clauses specified in the notice were only indicative and not exhaustive, there was nothing in the notice which could have given the appellant the impression that the action of blacklisting was being proposed." (Para 24)

"The mere existence of a clause in the Bid Document, which mentions blacklisting as a bar against eligibility, cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show cause notice. The Corporation’s notice is completely silent about blacklisting and as such, it could not have led the appellant to infer that such an action could be taken by the Corporation in pursuance of this notice." (Para 25)

Hence, the appeal stands allowed.

M. Maheswari



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