2025 (2) TMI 1243 - SC - Indian Laws

Appeal allowed; contractor blacklisting set aside for lack of strong independent evidence of contractual delay

M/s TECHNO PRINTS Versus CHHATTISGARH TEXTBOOK CORPORATION & ANR.

The SC disposed the appeal, holding that the authority's move to blacklist the contractor for alleged contractual delay was unjustified. The Court ... Entertainment of appeal arising from a challenge to the show cause notice - whether the respondents in the facts of this case more particularly having regard to the nature of violation were justified in calling upon the appellant to show cause as to why they should not be blacklisted for a period of three years - HELD THAT:- According to the Corporation the appellant herein violated the clauses 13.3, 16.1, 16.3 and 16.9 respectively of the terms of the Agreement. The sum and substance of all these clauses is that if the appellant is unable to complete the work of printing within the stipulated period of time then the consequences would be blacklisting. The Corporation rejected the say of the appellant herein that he was unbale to adhere to the prescribed time limit due to the Covid-19 pandemic. This Court in Kulja Industries Limited v. Chief General Manager Western Telecom Project BSNL & Ors. [2013 (10) TMI 733 - SUPREME COURT] has made pertinent observations as regards the power of an Authority to blacklist a company on the basis of the terms of the underlying contract. In the said case, Kulja Industries (Contractor) was blacklisted by BNSL (Authority) on the allegations of having obtained fraudulent payments from the Authority. This Court in the said case set aside the order of blacklisting passed by the Authority as it had the effect of permanently affecting the business of the contractor. As observed by this Court in Erusian Equipment & Chemicals Ltd. Vs. State of W.B. [1974 (11) TMI 89 - SUPREME COURT], an order of blacklisting casts a slur on the party being blacklisted and is stigmatic. Given the nature of such an order and the import thereof, it would be unreasonable and arbitrary to visit every contractor who is in breach of his contractual obligations with such consequences. There have to be strong, independent and overwhelming materials to resort to this power given the drastic consequences that an order of blacklisting has on a contractor. The power to blacklist cannot be resorted to when the grounds for the same are only breach or violation of a term or condition of a particular contract and when legal redress is available to both parties. Else, for every breach or violation, though there are legal modes of redress and which compensate the party like the Corporation, it would resort to blacklisting and at times by abandoning or scuttling the pending legal proceedings. In the overall view of the matter more particularly in the peculiar facts of the case, we have reached the conclusion that asking the appellant herein to file his reply to the show cause notice and then await the final order which may perhaps go against him, leaving him with no option but to challenge the same before the jurisdictional High Court will be nothing but an empty formality. Even otherwise, issuing of show cause notice if not always then at least most of the times is just an empty formality because at the very point of time the show cause notice is issued the Authority has made up its mind to ultimately pass the final order blacklisting the Contractor. In other words, the show cause notice in most of the cases is issued with a pre-determined mind. It has got to be issued because this Court has said that without giving an opportunity of hearing there cannot be any order of blacklisting. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a writ court should ordinarily entertain a challenge to a show cause notice issued in contractual/tender proceedings, and on what limited grounds such challenge is permissible. 2. Whether, on the facts before the Court, the issuing authority was justified in calling upon the contractor to show cause as to why it should be blacklisted for three years (i.e., whether the facts and contractual context warranted initiation of blacklisting proceedings). 3. Whether a show cause notice calling for blacklisting can be quashed at the interlocutory stage where the authority retains the power to consider explanations and reach a final decision. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability - Writ challenge to a show cause notice Legal framework: Judicial doctrine recognises that a charge-sheet or show cause notice ordinarily does not create a cause of action susceptible to writ relief unless issued by an authority lacking jurisdiction or tainted by mala fides. Courts should not act as fact-finding tribunals at the stage of a notice; prophylactic interference is generally premature. Precedent Treatment: The Court follows the well-established principle that a writ petition challenging a mere show cause notice is not ordinarily maintainable; exceptions exist where jurisdictional incompetence or mala fide conduct is demonstrable. Interpretation and reasoning: The Court reasoned that, while the general rule restrains premature judicial interference, that rule is not absolute. The nature and gravity of the consequences contemplated by the notice (notably blacklisting) require careful scrutiny even at the notice stage to prevent disproportionate or arbitrary stigmatic action. Ratio vs. Obiter: Ratio - The ordinary rule that show cause notices are not generally amenable to pre-decisional writ relief, subject to exceptions of lack of jurisdiction or mala fides. Obiter - Courts may consider the reasonableness of issuing a show cause notice when the contemplated penalty is highly stigmatic. Conclusions: The Court accepts the general rule (no routine quashing of show cause notices) but recognises a limited supervisory role where the show cause notice itself is manifestly unreasonable or where the contemplated penalty is drastic and the notice appears to be a formality issued with a pre-determined mind. Issue 2: Whether issuance of a show cause notice for blacklisting was justified on the facts Legal framework: Contractual terms in tender documents may confer on a contracting authority an inherent or express power to blacklist a defaulting contractor; such power must be exercised reasonably and in accordance with principles of natural justice. Blacklisting is a stigmatic, punitive, and drastic administrative measure and thereby attracts a higher threshold of justification. Precedent Treatment: The Court adheres to precedents establishing that blacklisting should be resorted to only in limited circumstances - e.g., habitual failure, unsatisfactory performance, failure to honour bids without sufficient grounds, or conduct showing dishonesty or deliberate wrongdoing. Where a genuine contractual dispute exists or adequate legal remedies are available to redress breach, blacklisting is generally inappropriate. Interpretation and reasoning: The Court examined the specific tender clauses relied upon (time-limits, capacity statements, bank guarantee/CD/positives sharing, and clauses authorising cancellation, forfeiture of EMD and blacklisting). The authority's allegations were that the contractor (i) failed to complete substantial contracted quantity within stipulated time, (ii) breached provisions regarding positives/CD use, and (iii) caused the Corporation to reassign uncompleted work to other printers. The Court balanced (a) the contractual right of the authority to protect public interest and enforce performance, against (b) the severe and lasting consequences of blacklisting and the contextual facts (notably the COVID-19 pandemic and its impact on ability to perform). The Court emphasised that blacklisting requires strong, independent and overwhelming materials showing conduct so deviant or aberrant as to warrant the punitive step; mere contractual breach, without more, is insufficient. Ratio vs. Obiter: Ratio - Blacklisting requires a high threshold of justification; a mere breach of contract, especially where mitigating circumstances exist or legal remedies suffice, does not automatically justify blacklisting. Obiter - Authorities should assess reasonableness before issuing show cause notices that contemplate blacklisting, since such notices can be mere formalities if a decision is pre-formed. Conclusions: On the facts, while there was an identifiable breach of contractual timelines and related clauses, the Court found that issuing a show cause notice specifically calling for blacklisting was disproportionate. Given the pandemic-related constraints acknowledged by the contractor and the absence of demonstrable deliberate or dishonest conduct, blacklisting proceedings were not justified at the interlocutory stage. Issue 3: Power to quash the blacklisting limb of a show cause notice and permissible interim relief Legal framework: Courts can exercise supervisory jurisdiction to quash administrative action (including notices) where issuance is arbitrary, exceeds scope, or where the contemplated sanction is manifestly excessive relative to the proven misconduct. Interim orders may be granted to preserve status quo and prevent irreparable stigmatic harm pending final decision. Precedent Treatment: The Court applies established controls on administrative power: blacklisting being stigmatic, courts will scrutinise both the underlying grounds and the procedural fairness of the notice; where imposed or sought without adequate justification, relief may be granted even prior to final administrative decision. Interpretation and reasoning: The Court assessed whether permitting the blacklisting-limb of the notice to proceed would be an 'empty formality' given the authority's asserted decisional mindset and the disproportionate consequences. It concluded that, while the authority may lawfully forfeit EMD and pursue contractual remedies, allowing the blacklisting process to run its course would impose irreversible stigma and thus could be quashed at this stage. Ratio vs. Obiter: Ratio - Where the contemplated administrative penalty is stigmatic and the material does not justify that penalty, the court may quash the specific limb of a show cause notice directing blacklisting while leaving other contractual remedies intact. Obiter - Authorities should avoid issuing blacklisting notices as mere formalities; they must apply the guiding principles before initiating such proceedings. Conclusions: The Court quashed and set aside the portion of the show cause notice seeking blacklisting while leaving intact other parts of the notice and preserving the authority's right to forfeit the EMD and to consider other contractual remedies. The contractor retained the opportunity to file explanations in respect of remaining allegations; the authority must objectively consider such replies before taking further action. Ancillary Observations 1. Authorities possess an inherent contractual power to blacklist, but exercising that power requires reasonable grounds and consideration of proportionality given the drastic consequences. 2. Blacklisting should be reserved for cases where conduct is shown to be habitual, grossly unsatisfactory, dishonest or otherwise antithetical to public interest; routine contractual breaches or pandemic-imposed non-performance ordinarily do not meet that threshold. 3. The Court reiterated that remedies like forfeiture of security/EMD, cancellation and re-allotment are available to contracting authorities and may be adequate to vindicate contractual rights without imposing stigmatic debarment.