M/S Standard Constructions vs State Of Karnataka
2023 Latest Caselaw 534 Kant

                                                   -1-
                                                             WP No. 24725 of 2019




                           IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                              DATED THIS THE 9TH DAY OF JANUARY, 2023

                                                BEFORE
                             THE HON'BLE MR JUSTICE M.NAGAPRASANNA
                             WRIT PETITION NO. 24725 OF 2019 (GM-RES)
                      BETWEEN:

                      1.    M/S STANDARD CONSTRUCTIONS
                            FLAT NO.401, SHAIL ESTATES
                            ROYAL PAVILION 6-3-787
                            OPP GOLD SPOT AMEERPET
                            HYDERABAD-500016
                            NOW KNOWN AS
                            M/S STANDARD INFRATECH PVT LTD
                            PLOT NO.10, AND 46, MIG2, 9TH PHASE
                            KPHB COLONY, KUKATPALLI
                            HYDERABAD-500085
                            BY ITS MANAGING DIRECTOR
                            M SESHA REDDY, S/O LATE H V KRISHNA REDDY
                            AGE 50 YEARS

                                                                        ...PETITIONER
                      (BY SRI. RAJENDRA M. S., ADVOCATE)

                      AND:
Digitally signed by
PADMAVATHI B K
                      1.    STATE OF KARNATAKA
Location: HIGH
COURT OF                    DEPARTMENT OF SOCIAL WELFARE
KARNATAKA
                            M S BUILDING, AMBEDKAR VEEDHI
                            BENGALURU-560001

                      2.    KARNATAKA RESIDENTIAL EDUCATIONAL
                            INSTITUTIONS SOCIETY
                            AN ORGANIZATION OF
                            GOVERNMENT OF KARNATAKA
                            NO.8, M.S.B.-1, 6 AND 7TH FLOOR,
                                     -2-
                                                 WP No. 24725 of 2019




    CUNNINGHAM ROAD
    BENGALURU-560052
    REP BY ITS EXECUTIVE DIRECTOR

                                                        ...RESPONDENTS
(BY SRI N.KUMAR, AGA FOR R1;
   SRI SIDHARTH BABU RAO, ADVOCATE FOR R2)

     THIS WRIT PETITION FILED UNDER ARTICLE 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO- QUASH
THE ORDER DATED 29.1.2019 RECEIVED BY THIS PETITIONER
ON 5.4.2019 VIDE ANNEXURE-A ISSUED BY THE R-2 AS
ILLEGAL AND BAD IN LAW AND ETC.,

     THIS PETITION, COMING ON FOR ORDERS, THIS DAY,
THE COURT MADE THE FOLLOWING:

                            ORDER

The petitioner is before this Court calling in question an

order dated 29.01.2019, passed by the second respondent,

whereby, permanently blacklisting him.

2. Heard Sri M.S.Rajendra, learned counsel for the

petitioner, Sri N. Kumar, learned Additional Government

Advocate for respondent No.1 and Sri Sidharth Baburao,

learned counsel for respondent No.2.

3. The second respondent is Karnataka Residential

Educational Institutions Society. The petitioner is a

construction company. The petitioner and the second

WP No. 24725 of 2019

respondent enter into a contract pursuant to the notice inviting

tender issued by the second respondent. It transpires that the

petitioner had not performed the contract according to the

terms drawn between the parties and the contract comes to be

permanently terminated. The termination of the contract is

pending adjudication before the civil Court in O.S.No.370/2016.

4. In the meantime, the impugned order dated

29-01-2019 is passed, permanently blacklisting the petitioner.

As noticed hereinabove, the order of termination of contract

was passed in the year 2012, the order of blacklisting is passed

seven years after such termination, that too without issuing

any notice to the petitioner, seeking to show cause as to why

the petitioner should not be blacklisted on account of

termination of a contract that had happened seven years ago.

5. It is trite law that any order that entails civil or

economic consequences must be passed only after compliance

with the principles of natural justice. It is an admitted fact that

no notice was even issued to the petitioner prior to passage of

an order of blacklisting him permanently. Reference being

WP No. 24725 of 2019

made to the judgment of the Apex Court in the circumstances

becomes apposite. The Apex Court in the case of VETINDIA

PHARMACEUTICALS LTD. V. STATE OF U.P. reported in

(2021) 1 SCC 804, has held as follows:

"9.Erusian Equipment & Chemicals Ltd. v. State of W.B. [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70] , held that there could not be arbitrary blacklisting and that too in violation of the principles of natural justice. In Joseph Vilangandan v. Executive Engineer (PWD) [Joseph Vilangandan v. Executive Engineer (PWD), (1978) 3 SCC 36] , this Court was considering a show-cause notice as follows : (Joseph Vilangandan case [Joseph Vilangandan v. Executive Engineer (PWD), (1978) 3 SCC 36] , SCC pp. 41-42, para 17)

"17. ... 'You are therefore requested to show cause ... why the work may not be arranged otherwise at your risk and loss, through other agencies after debarring you as a defaulter ...'

The crucial words are those that have been underlined [Ed. : Herein italicised.] . They take their colour from the context. Construed along with the links of the sentence which precede and succeed them, the words "debarring you as a defaulter", could be understood as conveying no more than that an action with reference to the contract in question, only, was under contemplation. There are no words in the notice which could give a clear intimation to the addressee that it was proposed to debar him from taking any contract, whatever, in future under the Department."

(emphasis in original)

WP No. 24725 of 2019

10. The question whether a show-cause notice prior to blacklisting mandates express communication why blacklisting be not ordered or was in contemplation of the authorities, this Court in Gorkha Security Services [Gorkha Security Services v. State (NCT of Delhi), (2014) 9 SCC 105] held as follows : (SCC pp.

120-21 & 123, paras 27-28 & 33)

"27. We are, therefore, of the opinion that it was incumbent on the part of the Department to state in the show-cause notice that the competent authority intended to impose such a penalty of blacklisting, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same. However, we may also add that even if it is not mentioned specifically but from the reading of the show- cause notice, it can be clearly inferred that such an action was proposed, that would fulfil this requirement. In the present case, however, reading of the show-cause notice does not suggest that noticee could find out that such an action could also be taken. We say so for the reasons that are recorded hereinafter.

28. In the instant case, no doubt the show-cause notice dated 6-2-2013 was served upon the appellant. Relevant portion thereof has already been extracted above (see para 5). This show-cause notice is conspicuously silent about the blacklisting action. On the contrary, after stating in detail the nature of alleged defaults and breaches of the agreement committed by the appellant the notice specifically mentions that because of the said defaults the appellant was "as such liable to be levied the cost accordingly". It further says 'why the action as mentioned above may not be taken against the firm, besides other action as deemed fit by the competent authority'. It follows from the above that main action which the respondents wanted to take was to levy the cost. No doubt, the notice further mentions that the competent authority

WP No. 24725 of 2019

could take other actions as deemed fit. However, that may not fulfil the requirement of putting the defaulter to the notice that action of blacklisting was also in the mind of the competent authority. Mere existence of Clause 27 in the agreement entered into between the parties, would not suffice the aforesaid mandatory requirement by vaguely mentioning other "actions as deemed fit". As already pointed out above insofar as penalty of blacklisting and forfeiture of earnest money/security deposit is concerned it can be imposed only, "if so warranted". Therefore, without any specific stipulation in this behalf, the respondent could not have imposed the penalty of blacklisting.

***

33. When we apply the ratio of the aforesaid judgment to the facts of the present case, it becomes difficult to accept the argument of the learned Additional Solicitor General. In the first instance, we may point out that no such case was set up by the respondents that by omitting to state the proposed action of blacklisting the appellant in the show-cause notice, has not caused any prejudice to the appellant. Moreover, had the action of blacklisting being specifically proposed in the show-cause notice, the appellant could have mentioned as to why such extreme penalty is not justified. It could have come out with extenuating circumstances defending such an action even if the defaults were there and the Department was not satisfied with the explanation qua the defaults. It could have even pleaded with the Department not to blacklist the appellant or do it for a lesser period in case the Department still wanted to blacklist the appellant. Therefore, it is not at all acceptable that non-mentioning of proposed blacklisting in the show-cause notice has not caused any prejudice to the appellant. This apart, the extreme nature of such a harsh penalty like blacklisting with severe consequences, would

WP No. 24725 of 2019

itself amount to causing prejudice to the appellant."

11. If the respondents had expressed their mind in the show-cause notice to blacklist, the appellant could have filed an appropriate response to the same. The insistence of the respondents to support the impugned order [Vetindia Pharmaceuticals Ltd. v. State of U.P., 2019 SCC OnLine All 6734] by reference to the terms of the tender cannot cure the illegality in the absence of the appellant being a successful tenderer and supplier. We therefore hold that the order of blacklisting dated 8-9-2009 stands vitiated from the very inception on more than one ground and merits interference."

In the light of the admitted fact of non-compliance with

principles of natural justice and the judgment of the Apex

Court, I deem it appropriate to set aside the order and remit

the matter back to the hands of the second respondent to issue

notice, consider the reply submitted by the petitioner and then,

pass appropriate orders in accordance with law, if they so

desire.

6. For the aforesaid reasons, the following:

ORDER

i. The writ petition is allowed.

WP No. 24725 of 2019

ii. The order dated 21.01.2019, passed by the second respondent stands quashed.

iii. The quashment of the order will not come in the way of respondent No.2 in issuing a notice to the petitioner and pass appropriate orders, in accordance with law.

Sd/-

JUDGE

NVJ