‘Specificity in show-cause notice required for imposing fine’; Supreme Court quashes MP High Court’s order maintaining 3 years’ debarment of transformer manufacturer

specific show cause notice

Supreme Court: In a Writ Petition challenging Madhya Pradesh High Court’s orders maintaining debarment and imposition of penalty against the appellant firm by Madhya Pradesh Madhya Kshetra Vidyut Vitran Co. Ltd. (‘MPMKVVCL’), the Division Bench of Dinesh Maheshwari* and Sanjay Kumar, JJ. quashed and set aside the High Court’s order debarring the appellant for 3 years and restricted any kind of recovery of penalty from the appellant.

The appellant has been in the business of manufacturing and repairing transformers for the past 30 years, having distribution companies (DISCOMs) being their only customers with a previous record of several successful supplies of transformers to MPMKVVCL. The instant matter relates to purchase orders of transformers to be delivered by the appellants to MPMKVVCL which was once delayed because of an extraordinary storm accompanied by heavy rains, which resulted in destruction of most of the raw material stored for manufacturing transformers.

On 18-9-2019, the Chief General Manager of MPMKVVCL sent a letter to appellant to defer the balance deliveries until further instructions and an order was issued on 19-11-2019 cancelling the supply of balance quantity of transformers thereby cancelling the supply of remaining quantity of transformers. A notice was issued on 26-11-2019 by him asking the appellant to show-cause within 15 days to explain why they should not be debarred from participating in further tenders for non-supply of transformers. The respondent replied to the same while setting out the circumstances disabling the undertake of supply against the purchase orders. But MPMKVVCL debarred the appellant from participating in future tenders for 3 years vide order dated 13-2-2020.

The appellant challenged the said order before the Madhya Pradesh High Court, however, the Court set aside the said order dated 13-2-2020 and directed MPMKVVCL to pass a fresh order within 15 days after giving the appellants an opportunity of being heard. After giving an opportunity of hearing to three representatives of the appellant and submissions through letters dated 27-2-2020 and 18-7-2020, orders were maintained for recovery of penalty on rejected and unsupplied transformers from appellants and appellant firm being debarred from participating in tenders of MPMKVVCL for 3 years. They also issued another order on 17-8-2020 imposing penalty of Rs.27,98,960/- in relation to TS-532, thus, the appellant preferred another writ petition before the High Court disposed of through order dated 23-4-2021 wherein, the High Court held the blacklisting order justified and that no case under Article 226 of Constitution was made out.

The appellant initially came up before Supreme Court through a Special Leave Petition but withdrew the same to file a review petition before the High Court which was also rejected through order dated 13-12-2021.

The Court viewed that the High Court’s denial of principal relief claimed by appellant cannot be approved and that the writ petition deserves to be allowed to the extent of annulment of effect of debarment and quashing the penalty.

The Court relied on the case of UMC Technologies (P) Ltd. v. Food Corpn. of India, (2021) 2 SCC 551 wherein, the Court explained the principles governing debarment or blacklisting and requirement of specificity in show-cause notice. The Court further supported the appellant’s reference to A.P. State Financial Corpn. v. C.M. Ashok Raju, (1994) 5 SCC 359 regarding maintainability of fresh appeal.

Getting into the merits of the case, the Court observed that,

“Finality attaching to the action of cancellation cannot be read as a due notice for imposition of penalty even if the respondents chose to employ the expression ‘cancelled with imposition of penalty’ in those orders”.

The Court considered the terms of contract and disapproved of the respondent’s action imposing penalty without affording the appellant an adequate opportunity of being heard. The Court also pointed out the imposition of maximum penalty without specifying the reason which the High Court completely omitted considering the appellant’s grievance. The Court pointed out that the respondents did not specify the quantum of loss to justify the imposition of maximum penalty in the instant case and thus, the order dated 17-8-2020 has to be set aside.

The Court found shortcomings in the order debarring the appellant for 3 years since substantial supplies were made against the purchase orders in question. The Court appreciated the appellant’s arguments that after the order of deferment, there was no further communication or indication from respondents to inform the appellant for resumption of supplies. The Court also set aside the order dated 30-7-2020 debarring the appellant.

The Court finally observed that the High Court had the opportunity to correct the obvious errors in order dated 23-4-2021 under the review petition since one part of the matter was not even considered and the other part also lacked requisite attention to appellant’s contentions. The Court set aside both the orders passed by the High Court while disposing writ petition and review petition. It further quashed and set aside the orders dated 30-7-2020 and 17-8-2020 regarding debarment and imposition of penalty. The Court restricted any recovery of penalty from the appellant.

[Isolators & Isolators v. M.P. Madhya Kshetra Vidyut Vitran Co. Ltd., 2023 SCC OnLine SC 444, Judgment dated 18-4-2023]

Judgment authored by: Justice Dinesh Maheshwari

Know Thy Judge | Justice Dinesh Maheshwari

Advocates who appeared in this case :

For Petitioners: Senior Advocate Vinay Navare, Advocate R.M. Sharma, Advocate Prashant R. Dahat, Advocate Ashok Kotangale, Advocate T.R.B. Sivakumar;

For Respondents: Additional Advocate General Bharat Singh, Advocate Ashis Pandey, Advocate Kshitiz Singh, Advocate on Record Amit Pawan.

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