Contract – Termination of – Blacklisting by Corporation – The Corporation had issued a Bid Document inviting bids for appointment of a recruitment agency to conduct the process or recruitment for hiring watchmen – The appellant was declared as the successful bidder – The appellant conducted a written exam for eligible aspirants for the post of watchmen with the Corporation – On the same day a Special Task Force of Police arrested 50 persons, who were in 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 dated 10.04.2018 to the appellant and alleged that the appellant had breached various clauses of the Bid document – 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 – Writ petition filed by the appellant before the High Court was dismissed – Before the Supreme Court, the appellant submitted that it only seeks to contest the issue of blacklisting and not the termination of the contract between the appellant and the Corporation – Held: A prior show cause notice granting a reasonable opportunity of being heard is an essential element of all administrative decision-making and particularly so in decisions pertaining to blacklisting which entail grave consequences for the entity being blacklisted – In these cases, furnishing of a valid show cause notice is critical and a failure to do so would be fatal to any order of blacklisting pursuant thereto – A show cause 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 – In the instant case, the show cause notice makes it clear that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its show cause notice – It was incumbent on the part of the Corporation to clarify in the show cause that it intended to blacklist the appellant, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same – Therefore, the show cause notice dated 10.04.2018 does not fulfil the requirements of a valid show cause notice for blacklisting – The Corporations’s order dated 09.01.2019 is quashed only so far as it blacklist the appellant from participating in future tenders.
Allowing the appeal, the Court
HELD: 1. 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 particularly crucial due to the severe consequences of blacklisting and the stigmatization that accrues to the person/entity being blacklisted. Here, it may be gainful to describe the concept of blacklisting and the graveness of the consequences occasioned by it. Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. This privilege arises because it is the State who is the counterparty in government contracts and as such, every eligible person is to be afforded an equal opportunity to participate in such contracts, without arbitrariness and discrimination. Not only does blacklisting takes away this privilege, it also tarnishes the blacklisted person’s reputation and brings the person’s character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person. [Para 14][1183-E-H; 1184-A]
2. In light of the various Supreme Court decisions, it is clear that a prior show cause notice granting a reasonable opportunity of being heard is an essential element of all administrative decision-making and particularly so in decisions pertaining to blacklisting which entail grave consequences for the entity being blacklisted. In these cases, furnishing of a valid show cause notice is critical and a failure to do so would be fatal to any order of blacklisting pursuant thereto. [Para 19][1186-BC]
3. The legal position is clear 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][1187-E-F]
4. A plain reading of the notice makes it clear that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its show cause notice. After listing 12 clauses of the “Instruction to Bidders”, which were part of the Corporation’s Bid Document dated 25.11.2016, 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. [Para 24][1188-G-H]
5. 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. Had the Corporation expressed its mind in the show cause notice to black list, the appellant could have filed a suitable reply for the same. Therefore, this Court is of the opinion that the show cause notice dated 10.04.2018 does not fulfil the requirements of a valid show cause notice for blacklisting. In view of this Court, the order of blacklisting the appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law. As a result, the consequent blacklisting order dated 09.01.2019 cannot be sustained. [Para 25][1189-D-F]
Erusian Equipment & Chemicals Ltd. v. State of West Bengal (1975) 1 SCC 70 : [1975] 2 SCR 674;
Raghunath Thakur v. State of Bihar (1989) 1 SCC 229 : [1988] 3 Suppl. SCR 867; Gorkha Security Services v. Government (NCT of Delhi) and Ors. (2014) 9 SCC
105 : [2014] 13 SCR 617 – relied on.
Nasir Ahmad v. Assistant Custodian General, Evacuee Property, Lucknow and Anr. (1980) 3 SCC 1 : [1980]
3 SCR 248 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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