Case Name : M/s Ace Integrated Solutions Ltd vs Food Corporation of India & Anr Case Reference: 2019 SCC OnLine Del 8422 : MANU/DE/1582/2019 Neutral Citation: 2019:DHC:2285-DB Case Number: LPA 264/2019 Court: Delhi High Court Bench: 02 Coram: Rajendra Menon, Anup Jairam Bhambhani (Author) Date: 25.04.2019
For a show cause notice to be valid as a basis for issuing a blacklisting or debarment order to a contracting party, it must clearly spell out, or its contents must be such that it can be clearly inferred therefrom: 1. That there is intention on the part of the person issuing the notice that the penalty of blacklisting may be imposed upon the noticee. This is so that the noticee has clear notice and is afforded an adequate, informed and meaningful opportunity to show cause against possible blacklisting or debarment.
There is a distinction between termination and debarment or blacklisting.
- Termination is a mode of ending an existing contractual relationship
- Debarment or blacklisting is a mode of preemptively disqualifying a party from future contractual relationships. These are two separate and distinct matters and cannot be rolled into one. Each must have its own rationale, grounds and procedures
In the matter of blacklisting of entities by government agencies in relation to contracts, there is a mandate of:
- Requirement of show-cause notice
- Hearing, before a person is placed on blacklist This is necessary since:
- Blacklisting visits a person with civil consequence inasmuch as it casts a slur, attaches a stigma and creates a barrier between the blacklisted person and State entities in matters of commercial transactions;
- The fundamentals of fair play require that a person should be afforded an opportunity to represent his case before being put on a blacklist at the hands of a state entity. This applies even when the contract with the State was not under a statute.
Initiation of the blacklisting process includes an opportunity of hearing being given to the party likely to be affected. A mere show cause notice is not sufficient and a noticee must have the opportunity of hearing before blacklisting.
Debarment amounts to civil death of the person
Refer also: Gorkha Security Services vs Government (NCT of Delhi), (2014) 9 SCC 105 The fundamental purpose behind service of show cause notice is to make the noticee understand the precise case set up against him. The notice must contain and requires the statement of imputations detailing out the alleged breaches and defaults committed, to afford the noticee and opportunity to rebut the same. The nature of action which is proposed to be taken for such breach must also be stated This is so that a noticee may point out that the proposed action is not warranted in a given case, even if the defaults/breaches alleged and complained of are not satisfactory explained When it comes to blacklisting, this requirements is more imperative since it is the harshest possible action. When action of blacklisting is sought to be taken against a person, there is a necessity of compliance with the principles of natural justice. A blacklisting order is stigmatic in nature. Erusian Equipment & Chemicals Ltd vs State of West Bengal, (1975) 1 SCC 70 The powers conferred on the State by Constitution - Article 298 in respect of carrying on of any trade, and acquisition, holding and disposal of property and making of properties is subject to Part III of the Constitution. Constitution - Article 14 mandates equality before the law and equal protection of the laws and therefore equality of opportunity should apply to matters of public contracts. Though the State has the right to trade; it also has the duty to observe equality. Though an ordinary individual can choose not to deal with any person; the Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract and therefore when the State acts to the prejudice of a person it has to be supported by legality. Blacklists are instruments of coercion and have the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for the purpose of gains. The relevant authority must have an objective satisfaction since a disability is created by the order of blacklisting. The fundamentals of fair play require that the person concerned should be given an opportunity to represent their case before being put on blacklist Southern Painters vs Fertilizers & Chemicals Travancore Ltd, (1994) Supp (2) SCC 699 Raghunath Thakur vs State of Bihar, (1989) 1 SCC 229 Any order having civil consequence should be passed only after following the principles of natural justice. Even if the rules don’t express so, it is an elementary principle of natural justice that parties affected by any order should have the right of being heard and making representations against the order. Caretel Infotech Ltd vs Hindustan Petroleum Corporation, (2019) SCC OnLine SC 494 Mere issuance of a show cause notice for visiting a bidder with the severe consequence of blacklisting is unsustainable. Kulja Industries Limited vs Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited, (2014) 14 SCC 731
See also: Constitution - Article 19 Constitution - Article 21 Constitution - Article 298
PDF: Ace Integrated Solutions Ltd vs FCI, LPA 264-2019 (Del HC-DB).pdf