No mention of intention to blacklist in the show cause notice? SC says such show cause notice and consequent blacklisting order liable to be quashed

Supreme Court: The bench of SA Nazeer* and BR Gavai, JJ has held that a show cause notice constituting the basis of a blacklisting order must spell out clearly the 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.


Background of the Case


In the present case, the Food Corporation of India blacklisted UMC Technologies Private Limited, the appellant, from participating in any future tenders of the Corporation for a period of 5 years. The appellant was declared as the successful bidder in the bids invited by the Corporation for appointment of a recruitment agency to conduct the process of recruitment for hiring watchmen for the Corporation’s office. However, on the day when the appellant conducted a written exam for eligible aspirants for the post of watchman with the Corporation at various centres in Madhya Pradesh, a Special Task Force of Bhopal Police arrested 50 persons in Gwalior, 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.

Upon receipt of the above information, the Corporation issued a show cause notice dated 10.04.2018 alleging that the appellant had breached various clauses of the Bid Document 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. The said notice directed the appellant to furnish an explanation within 15 days, failing which an appropriate ex-parte decision would be taken by the Corporation.

The appellant replied to the aforesaid notice and submitted an Observation Report-cum-Reply/Explanation which compared the seized documents with the original question papers and contended that there were many dissimilarities between the two and thus there had been no leakage or dissemination of the original question papers.


Analysis


Principles of Natural Justice

It is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. Hence, before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously.

“An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent.”

Show Cause Notice in case of Blacklisting

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.

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.”

Validity of the Show Cause Notice in the case at hand

The action of blacklisting in the present case was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its show cause notice. The notice merely contained 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. This is especially true since the appellant was under the belief that the Corporation was not even empowered to take such an action against it and since the only clause which mentioned blacklisting was not referred to by the Corporation in its show cause notice.”

It was the case of the appellant that serious prejudice has been caused to it due to the Corporation’s order of blacklisting as several other government corporations have now terminated their contracts with the appellant and/or prevented the appellant from participating in future tenders even though the impugned blacklisting order was, in fact, limited to the Corporation’s Madhya Pradesh regional office.

On this the Court said,

“This domino effect, which can effectively lead to the civil death of a person, shows that the consequences of blacklisting travel far beyond the dealings of the blacklisted person with one particular government corporation and in view thereof, this Court has consistently prescribed strict adherence to principles of natural justice whenever an entity is sought to be blacklisted.”

The Court, hence, noticed that it was incumbent on the part of the Corporation to clarify in the show cause notice that it intended to blacklist the appellant, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same.


Ruling


“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 Court observed that 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, it was held that the show cause notice dated 10.04.2018 did not fulfil the requirements of a valid show cause notice for blacklisting and as the order of blacklisting the appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law, the consequent blacklisting order dated 09.01.2019 cannot be sustained.

[UMC Technologies Ltd. v. Food Corporation of India,  2020 SCC OnLine SC 934, decided on 16.11.2020]


*Justice SA Nazeer has penned this judgment

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