Summary
The Supreme Court quashed the part of a show cause notice that asked a printing contractor why it should not be blacklisted for three years for failing to complete textbook printing on time during the COVID-19 period. It held that a mere breach of contract does not justify blacklisting, and that the principles governing blacklisting orders must be kept in mind even at the show-cause stage. The Corporation remained free to forfeit the EMD, and the rest of the notice was left untouched.
Issues
- Whether the Court should entertain a challenge to a show cause notice, given that writ courts ordinarily do not interfere at that stage.
- Whether the Corporation was justified in calling on the contractor to show cause why it should not be blacklisted for three years for delay in completing printing work, on the nature of the alleged violation.
Provisions considered
- Clauses 13.3, 16.1, 16.3 and 16.9, Tender document of the Chhattisgarh Textbook Corporation for textbook printing, 2020-21The clauses fix a 90-day supply period, allow cancellation and EMD forfeiture for slow progress, and allow blacklisting for three years if an L-1 tenderer refuses or fails to complete the work. The Court did not test their validity, but held that blacklisting for a mere failure to finish on time was unreasonable on the facts. (¶¶ 5, 19, 20, 23, 24)
- Article 226, Constitution of IndiaA writ court ordinarily should not entertain a challenge to a show cause notice unless it is issued without jurisdiction or is mala fide; on the peculiar facts, the Court interfered because the blacklisting proceedings would be an empty formality. (¶¶ 16, 32, 36)
Held
- Ordinarily a writ court should not entertain a challenge to a show cause notice unless it was issued by an authority without jurisdiction or is tainted by mala fides. (¶ 16)
- The contractor accepted that it could not perform within time because of the COVID-19 pandemic; at best this was a breach of contract. The question was whether such a breach could justify blacklisting. (¶¶ 17, 18, 19, 20)
- Drawing on Kulja Industries and Blue Dreamz Advertising, blacklisting is justified where a supplier habitually fails to supply on time, supplies substandard goods, or fails to honour a bid without sufficient grounds. It cannot be imposed where there is a genuine contractual dispute, and should be used only to protect the public from irresponsible or dishonest contractors, with a higher threshold for statutory bodies. (¶¶ 25, 26, 27)
- These principles must also guide the authority when it decides whether to issue a show cause notice proposing blacklisting. Having a power to blacklist is different from having reasonable grounds to exercise it. A useful test is to treat the notice as if it were the final order (since the final order cannot go beyond it) and ask whether it makes out a case for blacklisting. (¶¶ 29, 30, 31, 32)
- Blacklisting is stigmatic and drastic and can effectively end a business, its effect lasting beyond the debarment period. It needs strong, independent material and conduct so deviant or aberrant as to warrant punishment. It cannot rest on a mere breach of a contractual term where legal remedies are available to both sides (Erusian Equipment referred to). (¶¶ 33, 34, 35)
- On the peculiar facts, requiring the contractor to reply and await a likely adverse blacklisting order, followed by further litigation, would be an empty formality; the blacklisting part of the notice was quashed, while the Corporation remained free to forfeit the EMD of ₹5,00,000. (¶¶ 36, 37, 39)
Result
Appeal disposed of; the show cause notice dated 14.12.2022 quashed in so far as it proposed blacklisting; the Corporation left free to forfeit the EMD of ₹5,00,000, and the rest of the notice left untouched.