Case BriefsHigh Courts

Jharkhand High Court: A Division Bench of Ravi Ranjan, CJ and Sujit Narayan Prasad, J. allowed the appeal and quashed the impugned order as it suffers from material irregularities.

The facts of the case are such that the a notice inviting tender was issued by the respondent-BCCL on inviting applications from reputed and experienced contractors for repairing of drain in upgradation colonies under CV Area of BCCL. The writ petitioner-appellant participated in the process of bid along with other bidders and the writ petitioner-appellant was declared successful. The Letter of Acceptance for awarding the work was issued in favour of the writ petitioner which contained a condition wherein the writ petitioner-appellant was required to furnish performance security within the period of 28 days from the date of issuance of Letter of Acceptance. The writ petitioner-appellant did not furnish the performance security since the site plan was not furnished. The respondent-BCCL issued several reminders but to no avail. Thus, the respondent-BCCL cancelled the Letter of Acceptance and debarred/blacklisted the writ petitioner-appellant for participating in the future tender for a period of 12 months. A writ petition was filed challenging the same but the Court refused to interfere with the same on the ground of latches. Thus, the instant intra-court appeal was preferred under Clause 10 of the Letters Patent.

Counsel for the writ petitioner-appellant submitted that it was incumbent upon the respondent-management to provide an opportunity of hearing by issuing notice before passing an order of blacklisting for a period of 12 months but having not done so, the impugned order is not sustainable in the eye of law for utter violation of principles of natural justice

Counsel for the respondent submitted that several reminders have been given to the writ petitioner-appellant to complete the work within the period stipulated in the agreement, but having not done so, the order of blacklisting for 12 months has been passed. It was further submitted that a specific stipulation was made for furnishing the performance security, stating that apart from cancelling the Letter of Acceptance and forfeiting the earnest money, the decision will also be taken for debarment from participating in future tenders for a minimum period of 12 months Thus, such a stipulation made therein that action for debarment from participating in future tenders for a minimum period of 12 months is nothing but be treated as show cause.

The Court relied on Gorkha Security Services vs. Govt. (NCT of Delhi), (2014) 9 SCC 105 and reiterated that the principles of natural justice be followed in cases of blacklisting. The Court remarked that the cardinal principle of natural justice is mandatory to be followed in a case where any adverse decision/action is being taken against one or the other. The issuance of notice means that the person against whom any adverse action proposed to be taken, is required to be provided with the opportunity of hearing.

The Court thus held “on the basis of the facts discussed above, that the order passed by the learned Single Jude in refusing to interfere with the decision of the administrative authority, so far as it relates to debarring the writ petitioner-appellant from participating in future tenders for a period of 12 months, is not sustainable in the eye of law.” [Sanjay Kumar Sharma v. Bharat Coking Coal Ltd, L.P.A. No.304 of 2021, decided on 10-02-2022]


Appearances

For the Appellant: Mr. Amritansh Vats

For the Respondents: Mr. Anoop Kumar Mehta


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The Division Bench comprising of M. R. Shah* and B.V. Nagarathna, JJ., held that if a tentative decision is taken before any show cause notice is issued for any action, it cannot be said that subsequent decision was a pre-determined one. The Bench expressed,

“Merely because the show cause notice was issued after the inquiry committee report was considered and thereafter the State Government took the decision to initiate proceedings for blacklisting, that by itself it cannot be said that the order of blacklisting was predetermined as observed by the High Court.”

The respondent–contractor was awarded a contract for construction of a flyover over the railway level crossing at Bomikhal Junction in Bhubaneswar. In 2017, the constructed flyover collapsed during concreting of the railway over bridge at the level crossing, which resulted in loss of life and property including death of one person and injury to eleven others.

High-level Committee Report and Blacklisting of Contractor

A highlevel inquiry was conducted by the two member committee of Chief Engineer (Design) and Chief Engineer (DPI and Roads) which revealed following discrepancies:

  • The contractor did not submit the formwork design and adopted his own arrangement leading to collapse a huge structure during construction.
  • The contractor had not ensured adequate safety measures during the period of construction.
  • The quality assurance had not been maintained as stipulated in the codes and manuals and as per the agreement.
  • There were a lot many deficiencies in workmanship that could affect the quality of work.

On considering the committee report, the State directed that immediate necessary action be taken for blacklisting the contractor following the procedure as per the Orissa Public Works Department (OPWD) Code. Consequently, after issuing show cause notice to the contractor and going through his reply, the State government blacklisted him with immediate effect. Additionally, the contractor was banned from participating or bidding for any work to be undertaken by the Government of Odisha and also from transacting business with Government of Odisha, either directly or indirectly.

Impugned Decision of the High Court

Noticing that before a show cause notice was issued to the contractor, a communication dated 10-10-2017 was already written by the Under Secretary which showed that the Government had already ordered blacklisting of the contractor and the Engineer-in-Chief was directed to take immediate action for blacklisting the contractor, the High Court opined that the order of blacklisting was predetermined and thus was in the teeth of natural justice.

Therefore, the High Court had quashed and set aside the order of the State banning the respondent from participating or bidding for any work to be undertaken by Government of Odisha and transacting any business with Government of Odisha, either directly in the name of propriety bidder or indirectly under any different name or title. Further, the High Court also directed the State to remove the name of the respondent from the blacklist.

Whether the order of blacklisting was pre-determined?

Observing that in the communication dated 10-10-2017, it had been specifically mentioned that the action be taken for blacklisting after following the procedure as per the OPWD Code, the Bench opined that at most the order could be said to be a proposed decision to initiate the proceedings for blacklisting and not a pre-determined one. The Bench opined,

“Before any show cause notice is issued for any action when a tentative decision is taken, it cannot be said that subsequent decision followed by a show cause notice and the proceedings as per the OPWD Code can be said to be pre-determined.”

The Bench held that the action initiated against the respondent was not in a vacuum but after considering the committee’s report and after following the due procedure as required. Therefore, the High Court has erred in holding that the blacklisting order was predetermined. Further, the Bench opined that the High Court ought to have considered the seriousness of the incident in which due to omission and commission on the part of the contractor in constructing the flyover one person died and eleven others were injured and ought not to have quashed the blacklisting order.

Is there an ideal duration for blacklisting?

Noticeably, the State Government had formulated guidelines by O.M. dated 26-11-2021 which provides as under:

“The blacklisting period per offence shall be limited to 03 (Three) years subject to an overall maximum cumulative period of 10 (Ten) years for multiple offences”

Disapproving the guidelines issued by the State, the Bench opined that duration of blacklisting cannot be solely per offence. Seriousness of the lapse and the incident and/or gravity of commission and omission on the part of the contractor which led to the incident should be the relevant considerations. The Bench added,

“In a given case, it may happen that the commission and omission is very grave and because of the serious lapse and/or negligence, a major incident would have taken place. In such a case, it may be the contractor’s first offence, in such a case, the period/duration of the blacklisting/banning can be more than three years.”

However, since the said guidelines were not under challenge, the Bench abstained to interfere with the same leaving it to the State Government to suitably amend and/or modify the said office memorandum.

Conclusion

In the view of the above, the appeal was partly allowed. The Bench concluded that though the contractor did not deserve any leniency, to debar him permanently can be said to be too harsh a punishment. Hence, the duration of blacklisting was restricted to five years. The impugned judgment and order was set aside and quashed.

[State of Odisha v. Panda Infraproject Ltd., 2022 SCC OnLine SC 228, decided on 24-02-2022]


*Judgment by: Justice M.R. Shah


Appearance by:

For the State: Ashok Kumar Parija, Advocate General

For the Respondent: Sibo Sankar Misra, Advocate


Kamini Sharma, Editorial Assistant has put this report together


Case BriefsHigh Courts

Bombay High Court: The Division Bench of Dipankar Datta, CJ and G.S. Kulkarni, J., addressed an issue in light of the principles of judicial review explained that the Government must have freedom of contract.

 “…fair play in the joints is a necessary concomitant for an administrative body, functioning in an administrative sphere or quasi-administrative sphere.”

Factual Matrix

Petitioner was awarded a contract by the respondent – Navi Mumbai Municipal Corporation for a period of 5 years of the work of mechanized housekeeping and multi-purpose services in its health centres, which came to be terminated in 2017 due to non-satisfactory performance.

Issue in the Writ Petitions 

  • Fresh Tender issued for the same work but with a pre-qualification criterion that an eligibility condition providing that “the contractors whose work contract is terminated due to unsatisfactory services or are blacklisted would not be eligible to participate in the tender”

Arbitration Proceedings

On being aggrieved with the termination of contract, arbitration proceedings by the petitioner were initiated against the Corporation.

Petitioner’s Case

Petitioner’s case that if the petitioner is held to be ineligible by application of the said note in Clause 4(g) of the pre-qualification criteria, it would lead to a consequence that the petitioner cannot participate in such contracts of the Corporation although the petitioner is not blacklisted or debarred and yet is being prohibited to participate in such re-tender.

Discussion and Conclusion

Question that falls for determination in the present matter are:

(I) Whether the Municipal Corporation is entitled in law to impose a pre-qualification criterion as contained in Condition 4(g) (supra) to the effect that ‘the contractors whose work contract is terminated due to unsatisfactory services are not eligible to participate in the tender’?

(II) Whether imposing such impugned condition would amount to blacklisting of the petitioner?

In the present matter, while considering the facts and circumstances of the case, Bench discusses some vital points with respect to:

  • legal principles on the authority of the State and its instrumentalities to enter into contracts and
  • Principles of Judicial Review.

Power of Judicial Review is exercised to rein in unbridled executive functioning.

It is not the function of the Court to act as a super board, or with the zeal of a pedantic school master substituting its judgment for that of the administration. The duty of the court is to confine itself to the question of legality of the tender process on the touchstone of Article 14 of the Constitution.

It is not for the Court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. The only concern should be with the manner in which such decision have been taken.

On what grounds is the Judicial Review classified:

Firstly, Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it;

Secondly Irrationality, namely, Wednusbury unreasonableness, that is when a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at. The decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it.;

Thirdly Procedural impropriety. The Court does not sit as an appellate authority over the tendering authority, but merely reviews the manner in which the decision was made.

Bench in view of the above-stated expressed that the terms of the invitation to tender cannot be open to judicial scrutiny as an invitation to tender is in the realm of contract.

Further, it was added that the Government must have freedom of contract. Principles laid above are enunciated in the Supreme Court decision of Tata Cellular v. Union of India, (1994) 6 SCC 651.

With respect to taking a review of the authorities and more particularly on the prescription and adherence of essential conditions has laid down principles of judicial review in the Supreme Court decision of BSN Joshi &. Sons Ltd. v. Nair Coal Services Ltd., (2006) 11 SCC 548.

High Court elaborating more, added that the freedom to arrive at legitimate terms and conditions in inviting public offers cannot in any manner be taken away.

Cherished principles of free play in the joints and the liberty to choose a contractor, on terms and conditions fixed by the tendering authority in public interest, cannot be taken away.

Court would not have any expertise to sit in appeal over the tender conditions, the role of the Court is triggered only qua the decision-making process.

Moving forward, Bench examined whether Corporation acted either malafide or arbitrarily with material illegality in having a condition to restrict participation of a bidder whose contract is terminated due to unsatisfactory services?

 It was noted that the said condition was applicable to all the bidders and not just to the petitioner. The corporation made it clear with its condition that it did not desire a party whose work was unsatisfactory in the past to get onboard again, hence in Court’s opinion, the said condition became imperative, considering the nature of the contract.

Hence, Corporation’s condition was in no manner arbitrary and illegal. Therefore, Corporation was entitled in law to impose pre-qualification criteria as it did.

Second Question

 Imposing of impugned condition resulted in blacklisting the petitioner from participating in the tender in question?

Bench in light of the above question noted that a contractor cannot be blacklisted for having breached the terms and conditions of the contract unless a fair hearing was accorded to the party being blacklisted in due adherence to the principles of natural justice.

In Court’s Opinion, the present case is not the one wherein the petitioner can be said to be blacklisted by the Corporation.

In fact, the petitioner’s case is of an implied blacklisting by the Corporation by prescribing of a pre-bid criteria that a contractor whose work contract is terminated due to unsatisfactory performance is not eligible to participate in the tender.

Hence, present case is not of blacklisting.

It is also fallacious for the petitioner to label such condition as a condition of an implied blacklisting of the petitioner in future tenders to be issued by the Corporation. This is only a presumption of the petitioner. 

Concluding with the decision, High Court held that the petitions failed and were accordingly rejected. [BVG India Ltd. v. State of Maharashtra, 2021 SCC OnLine Bom 412, decided on 19-03-2021]


Advocates before the Court:

Mr. V. A. Thorat, Senior Advocate with Mr. Ashutosh M. Kulkarni and Mr. Sarthak S. Diwan for the Petitioner.

Mr. Sandeep Marne, for the Respondents.

Mr. P. P. Kakade, Government Pleader with Ms .R.A. Salukhe, AGP for State.

Case BriefsSupreme Court

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

Case BriefsHigh Courts

Bombay High Court: A Division bench comprising of Anoop V. Mohta and Bharati H. Dangre, JJ. heard a petition filed in relation to a tender process for supply of various drugs including one Human Anti-Hemophilic Factor VIII, issued by the respondent State in which the petitioners participated. The tender restricted participation from manufacturers/ distributors for the product for which it had been found guilty of malpractice, misconduct or had been debarred/ blacklisted by Maharashtra’s Public Health Department or any other local authority or Central or State Government organization.

The petitioners received a communication that they had been blacklisted for Anti-Hemophilic Factor VIII by State Health Society, Bihar. The petitioners responded with a copy of the order, stating that they had been “de-blacklisted” but de-registered for the next five years for not being able to supply required quantity of AHF within prescribed time. However, the aforementioned explanation was not considered and the petitioners were denied participation in the bid even though they were eligible to.

The Court held that the communication debarring petitioners in the tender process was unjust and unsustainable. De-registration could not be considered as indicative of malpractice or misconduct and there was no surviving case even of blacklisting. Therefore, the petitioners were held entitled to participate in the tender process and the respondents were directed to consider the petitioner’s bid as responsive. [Reliance Life Sciences Pvt. Ltd. v. State of Maharashtra, 2017 SCC OnLine Bom 7266, dated 02.08.2017]