{"id":319937,"date":"2024-04-12T12:00:13","date_gmt":"2024-04-12T06:30:13","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=319937"},"modified":"2024-05-14T17:57:58","modified_gmt":"2024-05-14T12:27:58","slug":"debarment-notice-causes-civil-death-of-business-principles-of-natural-justice-to-be-followed-dhc-legal-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/04\/12\/debarment-notice-causes-civil-death-of-business-principles-of-natural-justice-to-be-followed-dhc-legal-news\/","title":{"rendered":"[NH 39] Debarment\/Blacklisting notice can cause civil death of business; following principles of natural justice a must: Delhi HC sets aside order declining suspension of debarment"},"content":{"rendered":"
\n

Delhi High Court:<\/span> The present appeal was filed by appellant, Oasis Projects Ltd. under Section 37(2)(b)<\/a> of the Arbitration and Conciliation Act, 1996<\/a> (\u2018the Act\u2019) seeking setting aside of the order dated 19-7-2023 (\u2018impugned order\u2019), wherein the Sole Arbitrator declined the prayer for suspension of the debarment of appellant under Section 17 of the Act. Appellant also sought removal of the declaration of appellant as a non-performer from respondent\u2019s website and abey the debarment of appellant as per the letter dated 9-12-2022. Prathiba M. Singh, J.*<\/span>, noted that in the present case, a Show Cause Notice for non-performance and termination did not give a clear understanding of debarment and the punishment that appellant would face. The Court set aside the impugned order and held that appellant should not be treated as a \u201cnon-performer\u201d or a \u201cdebarred entity\u201d and the said declaration on respondent\u2019s website should also be removed.<\/p>\n

Background<\/p>\n

Appellant was a company engaged in the business of civil construction specializing in the construction of Highways with Asphalt-Concrete, bridges, and passes. Respondent invited bids for \u201cBalance work for four-laning of NH \u2014 39 Dimapur- Kohima Road from Design Km 152.490 to Km 166.700 [Package III]\u201d in Nagaland. Thereafter, vide Letter of Acceptance dated 16-7-2021, appellant was awarded the bid and appellant and respondent entered into an Engineering, Procurement and Construction Agreement (\u2018EPC Agreement\u2019) dated 30-7-2021 for a period of one year i.e., till 31-8-2022.<\/p>\n

Appellant stated that it faced immense hardships in executing the work due to issues in obtaining Right of Way (\u2018ROW\u2019) and the said issue occurred because compensation was not provided to the landowners. Appellant submitted that illegal mining was being conducted on the lands forming part of the ROW and they received threats and extortion letters from several local groups which further derailed the work. The opposition from local groups coupled with all the landslides that took place, and other factors constituted \u2018Force Majeure\u2019 as per clause 21.5 of the EPC, which led to delays in execution of the project.<\/p>\n

Respondent issued a Show Cause Notice dated 12-5-2022 declaring appellant as a \u2018non-performer\u2019 due to slow progress and poor planning of work. On 17-8-2022, appellant terminated the Contract under Clause 21.7 of the EPC Agreement and thereafter, respondent issued a Suspension Notice dated 19-8-2022 under clauses 11.17 (Suspension of unsafe Construction Works) and 22.1 (Suspension under Contractor Default) of the EPC Agreement. The suspension was revoked on 25-8-2022 and later, respondent declared the appellant as a \u2018non-performer\u2019 on its website. Further, respondent terminated the EPC on 9-12-2022.<\/p>\n

Meanwhile appellant filed arbitration proceedings seeking appointment of an arbitrator and stating that conciliation was not mandatory in nature and was directory in nature and that the parties could proceed with arbitration. Vide order dated 7-2-2023, this Court appointed a Sole Arbitrator and in the said proceedings, appellant moved an application challenging and seeking stay of the debarment of two years which was imposed upon appellant, as an automatic consequence of termination. The Sole Arbitrator on 19-7-2023, rejected the prayer for stay of debarment, observing that without detailed examination and evidence being recorded it would be difficult to reach a conclusion regarding the validity of the termination and the consequential debarment. The present appeal was thus filed by appellant challenging the order dated 19-7-2023 passed by the Sole Arbitrator.<\/p>\n

Analysis, Law, and Decision<\/p>\n

The Court noted that appellant was the first party which terminated the contract on 17-8-2022 and respondent\u2019s termination was subsequently done on 9-12-2022. Respondent also invoked the bank guarantees, but there was no single letter on record mentioning that the consequences of termination would be deemed debarment. The Court also took note of clause 23.1 which revealed that deemed debarment would happen only when there was a termination due to contractor default. The Court opined that there was an obligation on respondent to inform appellant of the debarment. Further, no notice was issued to appellant and no hearing was held. The notice that was served initially on 12-5-2022 was only regarding non-performance of contract and thereafter, after the termination by appellant on 17-8-2022, respondent issued another notice on 16-11-2022 regarding termination of the already terminated EPC Agreement.<\/p>\n

The Court stated that \u201cdebarment and blacklisting is in the nature of civil death\u201d for any person or entity and the inability to conduct business with respondent, which was one of the major entities involved in the construction of highways etc., would cause substantial monetary and commercial loss to appellant. Moreover, even in terms of the MoRTH circular dated 6-10-2021, issuing of a notice was mandatory in nature in cases of non- performance or debarring\/penalizing a contractor\/concessionaire. The Court thus opined that in the present case, a notice pertaining to non- performance and termination did not inherently imply association with the prospect of debarment, and thus there should have been a separate Show Cause Notice issued to the concerned entity\/person with respect to debarment.<\/p>\n

The Court relied on Kulja Industries Ltd. v. Western Telecom Project BSNL<\/span>, (2014) 14 SCC 731<\/a>, wherein the Supreme Court held that in cases of debarment or blacklisting, compliance of principles of natural justice was of utmost importance and the principles of fairness and proportionality would also have to be considered.<\/p>\n

The Court further relied on Gorkha Security Services v. Govt. (NCT of Delhi)<\/span>, (2014) 9 SCC 105<\/a>, wherein the Supreme Court observed that in a Show Cause Notice, it was mandatory to mention the act of blacklisting or there should be a clear inference to this effect, as the purpose of Show Cause Notice was to give a proper hearing to the parties by following the principles of natural justice. The Court noted that in the present case, a proper Show Cause Notice was not given which could give the clear inference that termination would lead to debarment.<\/p>\n

The Court further relied on UMC Technologies Pvt. Ltd. v. Food Corpn. of India<\/span>, (2021) 2 SCC 551<\/a>, wherein it was held that any notice for blacklisting or debarment had to clearly specify the reasons and the intention. The same should be particularized and be unambiguous in nature, as blacklisting had civil consequences for future business prospects, and had a domino effect, which could effectively lead to the civil death. The Court opined that the purpose of issuing a Show Cause Notice was to make the contracting party understand the gravity of the case being set up against it, and the punishment that they might face. The Court noted that in the present case, a Show Cause Notice for non-performance and termination did not give a clear understanding of debarment and the punishment that appellant would face.<\/p>\n

The Court also relied on ACE Integrated Solutions Ltd. v. Food Corporation of India<\/span>, 2019 SCC Online Del 8422<\/a>, wherein it was held that debarment\/blacklisting and termination could not be merged together, and debarment could not be an automatic consequence or a necessary sequitur to the termination of contract. The Court also relied on AL Sudais Haj & Umrah Services v. UOI<\/span>, 2023 SCC OnLine Del 476<\/a>, wherein it was held that mere use of the word \u201cautomatically\u201d, did not infer that the penalty of debarment or forfeiture was to be necessarily imposed.<\/p>\n

The Court observed that in the present case, the proceeding before the Guwahati High Court and also the order dated 1-12-2022, passed in Section 9 petition, where stay was sought from the invocation of the bank guarantee, made it clear that the reasons for refusal of relief under Section 9 was due to the pendency of litigation before the Gauhati High Court and various other local factors prevalent then. However, the situation in the present case was that the parties were already in arbitration.<\/p>\n

The Court opined that appellant\u2019s justification for non-performance requires to be adjudicated, thus, the impugned order deserves to be set aside. Appellant should not be treated as non-performer or a debarred entity and the said declaration on respondent\u2019s website should also be removed as the existence of the same on the website would mean that appellant would have to reveal in all other Government contracts, the fact that it was debarred or blacklisted by respondent. Debarment and blacklisting would also thus have a domino effect and the same was not only restricted to respondent. The Court also opined that the facts did show that there were some disturbances in the local areas leading to invocation of the force majeure clause and a petition was also heard before the Guwahati High Court. These issues require detailed examination and appellant should, however, be subject to the final decision in the arbitral proceedings on the question of non-performance, breach, illegality, and validity of termination, etc.<\/p>\n

[Oasis Projects Ltd. v. National Highway and Infrastructure Development Corpn. Ltd., 2024 SCC OnLine Del 2549<\/a>, decided on 10-4-2024<\/span>]<\/p>\n

*Judgment authored by: Justice Prathiba M. Singh<\/span><\/strong><\/p>\n

\n

Advocates who appeared in this case :<\/p>\n

For the Appellant: Sanjoy Ghose, Senior Advocate with Bharat Chugh, Mayank Arora, Prasoon Shekhar, Advocates<\/p>\n

For the Respondent: Malvika Trivedi, Senior Advocate; Pratishth Kaushal, Shailendra Slaria, Sujal Gupta, Raghwi Singh, Advocates; Rishinandan M. U., Manager (Technical), Anshul Agarwal, Legal Professional<\/p>\n

Buy Arbitration and Conciliation Act, 1996 \u00a0 HERE<\/a><\/h3>\n

\"arbitration<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Debarment encompasses a broader scope than termination, as it can prohibit an entity from entering into any contracts with a company altogether, rather than just ending one specific contract, as is the case with termination.<\/p>\n","protected":false},"author":1,"featured_media":314886,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[31083,31142,46285,49656,2543,67501,31785,67502,3659,11611],"class_list":["post-319937","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-blacklist","tag-business","tag-civil-death","tag-debarment","tag-Delhi_High_Court","tag-domino-effect","tag-national-highway","tag-nh-39","tag-notice","tag-principles-of-natural-justice"],"yoast_head":"\n[NH 39] Debarment\/Blacklisting notice causes civil death of a business; principles of natural justice to be strictly followed: Delhi HC | SCC Times<\/title>\n<meta name=\"description\" content=\"[NH 39] Delhi High Court held that debarment\/blacklisting notice had a domino effect and could cause civil death of business, thus principles of natural justice were to be strictly followed.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2024\/04\/12\/debarment-notice-causes-civil-death-of-business-principles-of-natural-justice-to-be-followed-dhc-legal-news\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"[NH 39] Debarment\/Blacklisting notice can cause civil death of business; 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Affects Right to Life","author":"Editor","date":"June 8, 2022","format":false,"excerpt":"Karnataka High Court: S.G Pandit, J. disposed of the petition leaving respondent-Railway authorities at liberty to take action against the catering services after affording an opportunity to them, in accordance with the law. The facts of the case are such that the respondent-Railways invited tenders for Housekeeping, Catering and Loading\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Karnataka High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/04\/New_Karnataka.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/04\/New_Karnataka.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/04\/New_Karnataka.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/04\/New_Karnataka.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/04\/New_Karnataka.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":327003,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/07\/20\/delhi-hc-stays-debarment-order-by-food-corporation-india-being-violative-of-principles-of-natural-justice-legal-news\/","url_meta":{"origin":319937,"position":2},"title":"Delhi High Court stays debarment order by Food Corporation of India for being violative of principles of natural justice","author":"Editor","date":"July 20, 2024","format":false,"excerpt":"The Food Corporation of India issued the undated communication after various defects were noticed in the Demolition and Reconstruction of 20 Residential Flats in Sector 27, Noida.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Delhi High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":266229,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/04\/30\/principles-of-natural-justice\/","url_meta":{"origin":319937,"position":3},"title":"Jhar HC | Principles of natural justice required to be followed and cannot be waived out depending upon quantum of punishment; Reiterated mandate of natural justice in blacklisting cases","author":"Editor","date":"April 30, 2022","format":false,"excerpt":"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\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":332119,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/09\/30\/del-hc-quashes-blacklisting-17-haj-group-organizers-natural-justice-lack-clear-notice-debarment-legal-news\/","url_meta":{"origin":319937,"position":4},"title":"Delhi High Court quashes blacklisting of 17 Haj Group Organizers on lack of clear notice on debarment","author":"Arunima","date":"September 30, 2024","format":false,"excerpt":"While the impugned orders are elaborate and explicitly cite specific provisions and clauses of the Haj Policy, 2023, which the petitioners were found to be violating, the show cause notices do not refer to any violations of the Haj Policy, 2023, attributable to the petitioners.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Delhi High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":271319,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/06\/sat-directions-of-debarment-and-the-penalty-imposed-by-whole-time-member-held-to-be-harsh-and-excessive-penalty-reduced-by-75\/","url_meta":{"origin":319937,"position":5},"title":"SAT | Directions of debarment and the penalty imposed by Whole time Member held to be harsh and excessive ; Penalty reduced by 75%","author":"Editor","date":"August 6, 2022","format":false,"excerpt":"\u00a0 \u00a0 Securities Appellate Tribunal, Mumbai (SAT): While dealing with the appeal preferred by the appellants against the order dated 08-06-2021 of the Whole Time Member (\u2018WTM'), the Coram of Tarun Agarwala, J. (Presiding Officer), M.T. Joshi, J. (Judicial Member), Meera Swarup (Technical Member) held that the directions of debarment\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"SAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-401.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-401.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-401.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-401.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-401.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/319937","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=319937"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/319937\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/314886"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=319937"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=319937"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=319937"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}