M/S Krishna Constructions vs The State Of Jharkhand
2021 Latest Caselaw 2237 Jhar

                                                   1

                   IN THE HIGH COURT OF JHARKHAND AT RANCHI
                                   W.P.(C) No. 5100 of 2018
            M/s Krishna Constructions, Gumla, through its partner, Jagannath Sahu
                                                                         ..... Petitioner
                                              Versus
            1. The State of Jharkhand
            2. The Engineer-in-Chief-cum-Registration Officer, Road Construction
            Department, Government of Jharkhand, Ranchi
            3. The Executive Engineer, Road Division, Simdega
            4. The Chief Engineer, Road Construction Department, Government of
            Jharkhand, Ranchi                                            ..... Respondents
                                               -----

CORAM HON'BLE MR. JUSTICE RAJESH SHANKAR

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            For the Petitioner:         Mr. Nilesh Kumar
            For the State:              Mr. Ashok Kumar, G.A-I
                                        Ms. Priyanka Bobby, A.C to G.A-I
                                               -----

04/07.07.2021     The present writ petition has been filed for quashing Memo No. 1833(S)

dated 15.03.2016 (Annexure-10 to the writ petition) issued by the respondent

No.2 whereby the petitioner has been blacklisted with immediate effect.

2. The factual background of the case, as stated in the writ petition, is that

the petitioner is a registered partnership firm engaged in construction and

government construction works for the last several years without any complaint

or allegation. In the year 2009, the petitioner and one M/s Saptagiri

Construction participated as a joint venture agency in the tender process for

widening and strengthening of Simdega-Rengari-Kersai-Bolba up to Orissa

Border road. The said agency was declared as L-1 in the said tender and

thereafter Agreement No. 01 of 2009-10 was executed between the said joint

venture agency and the respondent No.3 on 29.07.2009. The agreement value

of the work was Rs.37,85,20,733/-. The petitioner started the said work after

receiving Letter of Acceptance as well as notice to proceed with the work.

However, the same was delayed for the reason that the entire land was not

provided to the joint venture agency due to failure in timely acquisition of the

same and clearance from the Forest Department for removing the trees etc. was

also not given within the stipulated time. The joint venture agency also informed

the aforesaid difficulties to the respondent No.3 vide two letters dated

14.09.2009. Since the said request was not properly responded, the petitioner's

joint venture agency asked for extension of time for execution of the said work

whereupon the respondent No.3 also wrote letter dated 07.12.2012 to the

Superintending Engineer, Road Construction Department, Government of

Jharkhand, Ranchi, however, no decision was taken in this regard. The

respondent No.3 vide letter No. 56 dated 21.01.2013, again informed the

Superintending Engineer, Road Construction Department, Government of

Jharkhand, Ranchi that due to several reasons, the said work could not be

completed in time, however, the said authority did not pay any attention to the

request of the petitioner's joint venture and the respondent No.3. Thereafter,

the Road Construction Department intended to take coercive action against the

petitioner's joint venture by invoking his Bank Guarantee etc. against which they

initially filed Title Suit No. 2/2013 along with an application under Section 80(2)

of the C.P.C with a prayer to dispense with the statutory notice as required

under Section 80(2) of the C.P.C on the ground that they were apprehending

the termination of contract for which recommendation had been made by the

respondent authorities. However, the Court below rejected the prayer for grant

of leave under Section 80(2) of the C.P.C vide order dated 22.03.2013.

Thereafter, the petitioner and its partner jointly filed a writ petition being

W.P.(C) No. 2227 of 2013 before this Court and prayed for quashing the order

dated 22.03.2013 in which this Court vide order dated 12.04.2013, passed an

order of status-quo with regard to invocation of Bank Guarantee and the matter

is still pending before this Court. The petitioner repeatedly requested the Road

Construction Department to clear the land and provide the documents of the

acquired land so that it could proceed with construction work, but nothing was

done. The petitioner, however, came to know through the newspaper that it was

blacklisted vide impugned order dated 15.03.2016.

3. Learned counsel for the petitioner submits that the impugned order dated

15.03.2016 has been passed in violation of the principles of natural justice as no

prior show cause notice was issued to the petitioner for such debarment. The

land acquisition process for construction of the said road was not completed till

2015 and as such the petitioner may not be penalized for the delay occurred in

completion of the said work. A contractor cannot be blacklisted for indefinite

period that too without giving any opportunity of hearing and in violation of the

principles of natural justice. It is thus submitted that the said action of the

concerned respondent is illegal and arbitrary.

4. Per-contra, learned counsel for the respondents submits that as per the

Tender Bid Documents, the petitioner was supposed to visit the place of work

before taking part in the bidding process as well as to assess the difficulties and

after knowing all the facts and situations of the work site, it entered into an

agreement with the Road Construction Department assuring completion of the

said road within the stipulated period for the benefit of the public at large. The

petitioner started the said work and got actual payment of Rs.14,83,38,189/- for

the work done from 29.07.2009 to 17.03.2013 i.e. up to 33rd R/Ac bill, however,

due to its negligence, the work was stopped for a long time due to which, the

work already performed also got affected/damaged. It is further submitted that

though the petitioner was granted extension of time by the competent authority,

yet its request for further extension of time was refused. As per Clause 59.2 of

SBD, it was a fundamental breach of the contract. There was no complaint or

obstruction from any corner i.e. either from the raiyats or Forest Department

towards the ongoing road construction work, rather due to negligence on the

part of the petitioner, the construction work could not be completed. The final

measurement was taken on 10.12.2012 and total value of the work done by the

petitioner was assessed as Rs.13,29,83,005/-, moreover, the work amounting to

Rs.1,53,55,184/- got damaged due to negligence on the part of the petitioner.

Accordingly, an amount of Rs.1,53,55,184/- was ordered to be recovered from

the petitioner. After issuance of the impugned order dated 15.03.2016, a

criminal case being Simdega P.S. Case No. 56 of 2016 was also instituted as per

the direction of the Additional Chief Secretary and the Chief Engineer, Road

Construction Department, Government of Jharkhand vide letter No. 2169(S)

dated 31.03.2016 and Letter No. 2335(S) dated 07.04.2016 respectively. The

said FIR has been challenged before this Court in W.P.(Cr.) No. 156 of 2017

which is still pending.

5. Heard learned counsel for the parties and perused the relevant materials

available on record. The petitioner has confined the prayer made in the present

writ petition only to the extent of quashing the order as contained in Memo No.

1833(s) dated 15.03.2016 whereby it has been blacklisted. Main ground for

assailing the order of blacklisting is that the same has been passed in violation

of the principles of natural justice and also that the said debarment is

permanent in nature.

6. I have perused the impugned order dated 15.03.2016. The respondents

have alleged against the petitioner that it did not complete the said work within

the stipulated time and left it incomplete due to which, the respondent-

department suffered revenue loss for which a certificate case was instituted

against it. Moreover, an action under Rule 10.1.8 & 10.1.13 of Jharkhand Road

Construction Contractor Registration Rules, 2008 was also taken against the

petitioner and its partner-M/s Saptagiri Projects and Infrastructure Pvt. Ltd.,

accordingly they were blacklisted, but without specifying the period of such

blacklisting and thus the same appears to be permanent in nature.

7. So far as the order of blacklisting is concerned, it would be relevant to go

through the law laid down by the Hon'ble Supreme Court on the said issue.

8. In the case of Kulja Industries Limited Vs. Chief General Manager,

Western Telecom Project BSNL & Ors. reported in (2014) 14 SCC 731,

the Hon'ble Supreme Court has held as under:

"17. That apart, the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because "blacklisting"

simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any

constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential precondition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ court.

18. The legal position on the subject is settled by a long line of decisions rendered by this Court starting with Erusian Equipment & Chemicals Ltd. v. State of W.B. where this Court declared that blacklisting has the effect of preventing a person from entering into lawful relationship with the Government for purposes of gains and that the authority passing any such order was required to give a fair hearing before passing an order blacklisting a certain entity. This Court observed: (SCC p. 75, para 20) "20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist."

Subsequent decisions of this Court in Southern Painters v. Fertilizers & Chemicals Travancore Ltd.; Patel Engg. Ltd. v. Union of India; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd.;

Joseph Vilangandan v. Executive Engineer (PWD) among others have followed the ratio of that decision and applied the principle of audi alteram partem to the process that may eventually culminate in the blacklisting of a contractor.

19. Even the second facet of the scrutiny which the blacklisting order must suffer is no longer res integra. The decisions of this Court in Radha Krishna Agarwal v. State of Bihar;

E.P. Royappa v. State of T.N.; Maneka Gandhi v. Union of India; Ajay Hasia v. Khalid Mujib Sehravardi; Ramana Dayaram Shetty v.

International Airport Authority of India and

Dwarka Das Marfatia and Sons v. Port of Bombay have ruled against arbitrariness and discrimination in every matter that is subject to judicial review before a writ court exercising powers under Article 226 or Article 32 of the Constitution.

20. It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law. We do not consider it necessary to burden this judgment by a copious reference to the decisions on the subject. A reference to the following passage from the decision of this Court in Mahabir Auto Stores v. Indian Oil Corpn. should, in our view, suffice: (SCC pp. 760-61, para 12) "12. It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in Radha Krishna Agarwal v. State of Bihar. ... In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-

monopoly dealings, it should meet the test of Article 14 of the Constitution. If a governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. ... It appears to us that rule of reason and rule

against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case."

25. Suffice it to say that "debarment" is recognized and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. What is notable is that the "debarment" is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor."

9. In the case of Gorkha Security Services Vs. Government (NCT of

Delhi) & Ors. reported in (2014) 9 SCC 105, the Hon'ble Supreme Court has

held as under:

"16. It is a common case of the parties that the blacklisting has to be preceded by a show- cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting, many civil and/or evil consequences follow. It is described as "civil death" of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in government tenders which means precluding him from the award of government contracts."

10. In the aforesaid judgments, the Hon'ble Supreme Court has held that

when a contract is entered between two private parties, then in case of any

breach by one party, the other party has every right to blacklist the defaulter

and such right is unqualified. However, in a situation where an order of

blacklisting has been passed by the State or its instrumentalities, then such

order is within the realm of power of judicial review of the Writ Court and the

same has to be tested in the touchstone of the principles of natural justice,

doctrine of proportionality, reasonableness and fairness. The order of blacklisting

has the effect of denying a person to participate in a public contract. Blacklisting

has the effect of preventing a person from the privilege and advantage of

entering into lawful relationship with the government/government agencies for

the purposes of gains. Thus, before taking such a harsh decision, the person

concerned should be given an opportunity to represent its case before it is put

on the blacklist. A show cause notice should not be a mere formality, rather the

same should specifically mention the grounds according to which the

department necessitates the action and also the proposed action so that the

person aggrieved may appropriately explain the circumstances.

11. The specific case of the petitioner is that no prior show cause notice was

served to it to explain the delay caused in the awarded work and the

respondents have straightway passed the impugned order of blacklisting.

Though the respondents have filed their counter affidavit, yet they have not

controverted the said claim of the petitioner, rather they have focused on the

issue of delay in execution of the work. Even if it is assumed that the petitioner

was guilty of causing delay in the work, the said ground itself was not sufficient

to pass the impugned order of blacklisting. As discussed above, since the order

of blacklisting has adverse civil consequences and the same is stigmatic in

nature, before passing such order, a specific show cause notice is required to be

served to the delinquent so that it may take appropriate defence against the

proposed action. Moreover, the impugned order of blacklisting the petitioner did

not mention the period of blacklisting and thus it is permanent in nature which

is contrary to the legal principles laid down by the Hon'ble Supreme Court in the

case of Kulja Industries Limited (Supra) wherein it has specially been held

that a debarment can never be permanent.

12. In view of the aforesaid discussions, the impugned order dated

15.03.2016, so far as it relates to blacklisting of the petitioner for an indefinite

period, cannot be sustained in law. Hence, the impugned order as contained in

Memo No. 1833(S) dated 15.03.2016 (Annexure-10 to the writ petition) issued

by the respondent No.2 is quashed and set aside.

13. Now the question arises as to whether it would be appropriate to allow

the respondents to re-initiate a proceeding for blacklisting/debarring the

petitioner on complying the legal requirements. The impugned order of

blacklisting/debarring the petitioner was passed in the month of March, 2016

and it has already faced its consequences for more than five years. Under the

said circumstance, this Court is of the view that it would be too harsh for the

petitioner, if any such liberty is now given to the respondents to re-initiate the

proceeding of blacklisting against it. Otherwise also, the respondents being the

instrumentality of the State were supposed to know the legal requirements to

be followed while taking steps for blacklisting the petitioner which involved

adverse civil consequences.

14. The present writ petition is accordingly disposed of with aforesaid

observations.

Satish/A.F.R                                                           (RAJESH SHANKAR, J)