Madhya Pradesh High Court
M/S Torque Electricals Through ... vs Madhya Pradesh Paschim Kshetra ... on 9 May, 2023
Author: Sushrut Arvind Dharmadhikari
1
IN THE HIGH COURT OF MADHYA PRADESH
AT INDORE
BEFORE
HON'BLE SHRI JUSTICE SUSHRUT ARVIND DHARMADHIKARI
&
HON'BLE SHRI JUSTICE PRAKASH CHANDRA GUPTA
ON THE 9 th OF MAY, 2023
WRIT PETITION No. 2193 of 2023
BETWEEN:-
M/S TORQUE ELECTRICALS THROUGH ITS
PROPRIETOR DEVESH SINGH DASONDHI 275,
TRIMURTI NAGAR, DHAR, DISTRICT DHAR (MADHYA
PRADESH)
.....PETITIONER
(SHRI MANOJ MUNSHI, LEARNED COUNSEL FOR THE PETITIONER)
AND
MADHYA PRADESH PASCHIM KSHETRA VIDYUT
VITRAN COMPANY LIMITED THROUGH EXECUTIVE
D I R E C T O R G.P.H. COMPOUND, POLOGROUND,
DISTRICT INDORE (MADHYA PRADESH)
.....RESPONDENT
(SHRI ABHISHEK TUGNAWAT, LEARNED COUNSEL FOR THE
RESPONDENT)
This petition coming on for admission this day, JUSTICE SUSHRUT
ARVIND DHARMADHIKARI passed the following:
ORDER
Since the pleadings are complete, therefore, this matter is heard finally
with the consent of both the parties.
2. This petition under Article 226 of the Constitution of India has been
filed by the petitioner questioning the legality, validity and propriety of the order
dated 02/03/2021(Anexure-P/1) whereby the petitioner/firm has been debarred
from the future business with the Madhya Pradesh Paschim Kshetra Vidyut
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Vitran Company Ltd., Indore for a period of 3 years, from the date of issuance
of this order with forfeiture of Earnest Money Deposit, deposited against TS-
1433.
3. Brief facts leading to filing of this case are that the aforesaid impugned
order amounts to black-listing of the petitioner/firm and the same has been
passed contrary to the terms and conditions of contract and has breached the
settled principle of law as before passing the orders which carry civil
consequences, has not been followed, the principle of audi alteram partem.
Before blacklisting the petitioner/firm the respondent did not care to issue any
show cause notice and passed the order of black-listing of the petitioner/firm
and also consequentially forfeiting the Earnest Money Deposit. The said
impugned order has been passed for the reason of non-completion of the
contractual formalities i.e., non-submission of Bank Guarantee/FDR towards
security deposit and non-execution of required agreement within the stipulated
time period against the awarded rate contract, the said rate contract has been
cancelled vide order dated 25/01/2021.
4. The petitioner is a reputed Class "A" electrical contractor engaged in
execution of contracts with various government authorities from time to time.
The respondent/Company is a Government Company wholly owned by the
Government of Madhya Pradesh Corporations and the same is governed by the
provisions of The Companies Act, 2013. Thus, the respondent is a State within
the meaning of Article 12 of the Constitution of India and, therefore, is
amenable to the writ jurisdiction of this Court.
5 . The respondent/authority had issued a NIT dated 02/05/2020 for
"Repairing & Testing of 11/0.433 KV Distribution Transformers(16KVA
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to 200 KVA)" for a probable amount of contract being 8800 (Rs. in lakh).
The petitioner took part in the tender process and was eventually awarded the
tender being the Lowest Bidder. The respondent, thereafter, intimated the
petitioner to submit the security deposit, execute the contract before
04/11/2020. However, due to non-deposit of the security deposit and non-
execution of the agreement within time, the respondent vide the impugned order
dated 25/01/2021 cancelled the contract. Thereafter, vide impugned order
dated 02/03/2021(Annexure-P/1) debarred/blacklisted the petitioner without
following the principles of natural justice.
6 . Learned counsel for the petitioner has contended that the order of
blacklisting is illegal because as per the settled legal position, the order of
blacklisting cannot be issued without giving any opportunity of hearing or
issuing show-cause notice. He submitted that the basic order of blacklisting is
not sustainable in the eyes of law. He relied upon the decisions reported in
(1975) 1 SCC 70 (M/s. Erusian Equipment & Chemicals Ltd. Vs. State
of West Bengal and another, (1989) 1 SCC 229 (Raghunath Thakur Vs.
State of Bihar and others), (2001) 8 SCC 604 (Grosons Pharmaceuticals
(P) Ltd. and another Vs. State of U.P. and others, (2007) 14 SCC 517
(Jagdish Mandal Vs. State of Orissa and others), 2014 (4) M.P.L.J. 225
(Bhupendra Singh Kushwah Vs. State of M.P. and another), (2014) 14
SCC 731 (Kulja Industries Limited Vs. Chief General Manager, Western
Telecom Project Bharat Sanchar Nigam Limited and others) and (2014)
9 SCC 105 (Gorkha Security Services Vs. Government (NCT of Delhi)
and others).
7. Per Contra, Shri Abhishek Tugnawat, learned counsel appearing for
the respondent submitted that there was no need to issue show-cause notice to
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the petitioner in the light of Condition/Clause No.17(iv) of the tender document
in which it was clearly mentioned that the petitioner is required to deposit the
security amount, failing which, the tender would be cancelled without assigning
any reason. The petitioner had the knowledge of the aforesaid condition,
therefore, show-cause notice was not necessary. The Clause/condition
No.17(iv) of the tender document is reproduced below :-
(17)(iv) No Permanent Security Deposit(PSD) shall be
considered against this tender and the bidder shall have to
furnish the requisite fresh Security deposit as above.
The Firm/repairer shall not be allowed to commence the
work of repair till such time he deposits security as detailed
above. After the acceptance of security deposit by the
regional C.E.s allotment of the defective transformers for the
repairs shall be made by him. If security is not deposited
within 30 days of receipt of award, then the rate contract be
cancelled without any liability and such firm shall be
debarred for next 3 years.
8. In view of the aforesaid, learned counsel for the respondent submits
that this petition deserves to be dismissed.
9. Heard learned counsel for the parties and perused the record.
10. It is an admitted position that before passing the order impugned of
blacklisting of the petitioner/firm, no show cause notice was issued to the
petitioner/firm which amounts to violation of the principle of natural justice and
giving go-bye the principle of audi alteram partem, action of the respondent
cannot be countenanced.
11. The Supreme Court i n case of M/s.Erus ia n Equipment &
Chemicals Ltd.(supra) has observed as under:-
20. Blacklisting has the effect of preventing a person from the
privilege and advantage of entering into lawful relationship with
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the Government for purposes of gains. The fact that a disability is
created b y 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.
12. In case of Raghunath Thakur(supra), the Supreme Court has
observed as under:-
4. Indisputably, no notice had been given to the appellant of the
proposal of black-listing the appellant. It was contended on
behalf of the State Government that there was no requirement in
the rule of giving any prior notice before black-listing any person.
In so far as the contention that there is no requirement specifically
of giving any notice is concerned, the respondent is right. But it is
an implied principle of the rule of law that any order having civil
consequence should b e passed only after following the PG NO
869 principles of natural justice. It has to be realised that black-
listing any person in respect of business ventures has civil
consequence for the future business of the person concerned in
any event. Even if the rules do not express so, it is an elementary
principle of natural justice that parties affected by any order
should ha v e right of being heard and making representations
against the order. In that view of the matter, the last portion of the
order in so far as it directs black-listing of the appellant in
respect of future contracts, cannot be sustained in law. In the
premises, that portion of the order directing that the appellant be
placed in the black-list in respect of future contracts under the
Collector is set aside. So far as the cancellation of the bid of the
appellant is concerned, that is not affected. This order will,
however, not prevent the State Government or the appropriate
authorities from taking any future steps for blacklisting the
appellant if the Government is so entitled to do so in accordance
with law, i.e. giving the appellant due notice and an opportunity
o f making representation. After hearing the appellant, the State
Government will be at liberty to pass any order in accordance
with law indicating the reasons therefor. We, however, make it
quite clear that we are not expressing any opinion on the
correctness or otherwise of the allegations made against the
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appellant. The appeal is thus disposed of.
1 3 . In case of Grosons Pharmadeuticals (P) Otd. And
another(supra), the Supreme Court has observed as under:-
2. Learned counsel appearing for the appellant, urged that seeing
the nature and seriousness of the order passed against the
appellant, the respondent ought to have supplied all the materials
on the basis of which the charges contained in the show cause
notice were based along with sho w cause notice and in the
absence of supply of materials, the order impugned is against the
principles of natural justice. We do not find any merit in this
contention. Admittedly, the appellant has only contractual
relationship with the State government and the said relationship is
not governed by any statutory Rules. There is no statutory rule
which requires that an approved contract or cannot be blacklisted
without giving an opportunity of show cause. It is true that an
order blacklisting an approved contractor results in civil
consequences and in such a situation in the absence of statutory
rules, the only requirement of law while passing such an order
was to observe the principle of audi alteram partem which is
one of the facet of the principles of natural justice.The contention
that it was incumbent upon the respondent to have supplied the
material on the basis of which the charges against the appellant
were based was not the requirement of principle of audi alteram
partem. It was sufficient requirement of law that an opportunity
of show cause was given to the appellant before it was
blacklisted. It is not disputed that in the present case, the
appellant was given an opportunity to show cause and he did
reply to the show cause which was duly considered by the State
Government. W e a r e , therefore, of the view that that the
procedure adopted by the respondent while blacklisting the
appellant was in conformity with the principles of natural justice.
14. Further, in case of Jagdish Mandal(supra), the Supreme Court has
observed as under:-
27. The learned counsel for the fifth respondent submitted that
the Department ought not to have acted on a complaint received
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against him, without giving him an opportunity to show cause.
This contention has no merit. Whether any complaint is
received or not, the Department is entitled t o veri fy the
authenticity of the document pledged as earnest money deposit.
Such verification is routinely done. The Committee was neither
blacklisting the tenderer nor visiting any penal consequences
on the tenderer. It was merely treating the tender as defective.
There was, therefore, no need to give an opportunity to the
tenderer to show cause at that stage. We no doubt agree that the
Committee could have granted an opportunity to the tenderer to
explain the position. But failure to do so cannot render the
action of the Committee treating the EMD as defective, illegal
or arbitrary.
15. In case of Bhupendra Singh Kushwah(supra), the Supreme Court
has observes ad under:-
10. Therefore in view of the aforesaid fact and the legal position,
it is clear that before passing any order of cancellation of
registration or blacklisting a Contractor, the State Government or
its departments are necessarily required to issue a show cause
notice or to provide an adequate hearing to a Contractor, in terms
of the principles of natural justice. A perusal of the document
annexed with the petition and the record placed for consideration
of the Court on behalf of the respondents clearly demonstrate that
no show cause notice was ever issued to the petitioner before
ordering for cancellation of the registration and placement of the
name of the petitioner in the blacklist seriously violates the
cardinal principles of audi alteram partem, therefore, on this
gr ound al one , t h e o r d e r o f cancellation of registration of
Contractor and order of blacklisting deserves to be quashed.
16. Further, in case of Kulja Industries Ltd.(supra), the Supreme
Court has observed as under:-
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.[(1975)1SCC70] where this Court declared that
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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 i nto 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 playrequire 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. [1994 Supp (2) SCC
699 : AIR 1994 SC 1277] ; Patel Engg. Ltd. v. Union of India
[(2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445] ; B.S.N. Joshi
& SonsLtd. v. Nair Coal Services Ltd. [(2006) 11 SCC 548] ;
Joseph Vilangandan v. Executive Engineer (PWD) [(1978) 3
SCC 36] 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.
17. Likewise in a case Gorkha Security Services(supra), the Supreme
Court has held as under:-
21. The Central issue, however, pertains to the requirement of
stating the action which is proposed to be taken. The
fundamental purpose behind the serving of Show Cause Notice
is to make the noticee understand the precise case set up
against him which he has to meet. This would require the
statement of imputations detailing out the alleged breaches and
defaults he has committed, so that he gets an opportunity to
rebut the same.Another requirement, according to us, is the
nature of action which is proposed to be taken for such a
breach. That should also be stated so that the noticee is able to
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point out that proposed action is not warranted in the given
case, even if the defaults/breaches complained of are not
satisfactorily explained. When it comes to black listing, this
requirement becomes all the more imperative, having regard to
the fact that it is harshest possible action.
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 fulfill 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 up o n t h e 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 could take
other actions as deemed fit. However, that may not fulfill 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."
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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.
29. No doubt, rules of natural justice are not embodied rules
nor can they be lifted to the position of fundamental rights.
However, their aim is to secure justice and to prevent
miscarriage of justice. It is now well-established proposition
of law that unless a statutory provision either specifically or by
necessary implication excludes the application of any rules of
natural justice, in exercise of power prejudicially affecting
another must be in conformity with the rules of natural justice."
18. The Apex Court in the case of Ranjit Buildcon Ltd. Vs. State of
M.P. & Others reported in [2020(2) M.P.L.J.] 330 has held as under :
7. When a commercial Firm is put in the blacklist, it entails
serious civil consequences for the Firm and at the same time it
affects the reputation of the Firm, which is a drastic step to be
taken against a person. In such a situation, the State is
expected to proceed with care and responsibility before
blacklisting any Firm. It is a trite law that the parties who are
adversely affected by an order, should have a right of being
heard against the same and in such circumstances, the
principles of natural justice must be adhered to.
19. In the case of UMC Technologies Private Limited Vs. Food
Corporation of India & Another [(2021) 2 SCC 551],the Apex Court in
Paragraphs 13 to 19 has held as follows :
13. At the outset, it must be noted that it is the first principle of
civilised jurisprudence that a person against whom any action is
sought to be taken or whose right or interests are being affected
should be given a reasonable opportunity to defend himself. The
basic principle of natural justice is that before adjudication starts,
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the authority concerned should give to the affected party a notice
of the case against him so that he can defend himself. Such notice
should b e adequate and the grounds necessitating action and the
penalty/action proposed should be mentioned specifically and
unambiguously. An order travelling beyond the bounds of notice
is impermissible and without jurisdiction to that extent. This
Court in Nasir Ahmad v. Assistant Custodian General, Evacuee
Property, Lucknow and Anr.,1 has held that it is essential for the
notice to specify the particular grounds on the basis of which an
action is proposed to be taken so as to enable the noticee to
answer the case against him. If these conditions are not satisfied,
the person cannot be said to have been granted any reasonable
opportunity of being heard.1 (1980) 3 SCC 1.
14. Specifically, in the context of blacklisting of a person or an
entity by the state or a state corporation, the requirement of a
valid, particularized and unambiguous show cause notice is
particularly crucial due to the severe consequences of
blacklisting and the stigmatization that accrues to the
person/entity being blacklisted. Here, it may be gainful to
describe the concept of blacklisting and the graveness of the
consequences occasioned by it. Blacklisting ha s the effect of
denying a person o r a n entity t h e privileged opportunity of
entering into government contracts. This privilege arises because
it is the State who is the counterparty in government contracts and
as such, every eligible person is to be afforded an equal
opportunity to participate in such contracts, without arbitrariness
and discrimination. Not only does blacklisting takes away this
privilege, it also tarnishes the blacklisted persons reputation and
brings the persons character into question. Blacklisting also has
long-lasting civil consequences for the future business prospects
of the blacklisted person.
15. In the present case as well, the appellant has submitted that
serious prejudice has been caused to it due to the Corporations
order of blacklisting as several other government corporations
have now terminated their contracts with the appellant and/or
prevented the appellant fr om participating i n future tenders
even though the impugned blacklisting order was, in fact,
limited to the Corporation's Madhya Pradesh regional office.
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This domino effect, which can effectively lead to the civil
death of a person, shows that the consequences of blacklisting
travel far beyond the dealings of the blacklisted person with
one particular government corporation and in view thereof, this
Court has consistently prescribed strict adherence to principles
of natural justice whenever an entity is sought to be
blacklisted.
16. The severity o f the effects of blacklisting and the resultant
need for strict observance of the principles of natural justice
before passing an order of blacklisting were highlighted by this
Court in Erusian Equipment & Chemicals Ltd. v. State of
West Bengal in the following terms:
12. .... The order of blacklisting has the effect of depriving a
person of equality of opportunity in the matter of public
contract. A person who is on the approved list is unable to
enter into advantageous relations with the Government because
of the order of blacklisting. A person who has been dealing with
the Government in the matter of sale and purchase of materials
has a legitimate interest or expectation. When the State acts to
the prejudice of a person it has to be supported by legality.
XXX XXX XXX
15. .... The blacklisting order involves civil consequences. It
casts a slur. It creates a barrier between the persons
blacklisted and the Government in the matter of transactions.
The black lists are instruments of coercion.
20. Blacklisting has the effect of preventing a person from
t h e 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."
17. Similarly, this Court in Raghunath Thakur v. State of Bihar,
struck down an order of blacklisting for future contracts on the
ground of non-observance of the principles of natural justice. The
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relevant extract of the judgment in that case is as follows:
"4. .... [1] It is an implied principle of the rule of law that
any order having civil consequences should be passed only
after following the principles of natural justice. It has to be
realised that blacklisting any person in respect of business
ventures has civil consequence for the future business of the
person concerned in any event. Even if the rules do not
express so, it is an elementary principle of natural justice
that parties affected by any order should have right of being
heard and making representations against the order."
18. This Court in Gorkha Security Services v. Government
(NCT of Delhi) and Ors. has described blacklisting as being
equivalent to the civil death of a person because blacklisting is
stigmatic in nature and debars a person from participating in
government tenders thereby precluding him from the award of
government contracts. It has been held thus:(SCC p.115, para 16)
"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.ÂÂ
19. In the light of the above decisions, it is clear that a prior show
cause notice granting a reasonable opportunity of being heard is
an essential element of all administrative decision-making and
particularly so in decisions pertaining to blacklisting which entail
grave consequences for the entity being blacklisted. In these
cases, furnishing of a valid show cause notice is critical and a
failure to do so would be fatal to any order of blacklisting
pursuant thereto.
2 0 . Thus, it is clear that in the present case, before issuing the order
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impugned dated 02/03/2021(Annexure-P/1), which is the order of blacklisting,
the same suffers from the violation of principle of audi alteram partem and as
such, the order is not sustainable and is hereby set-aside. The blacklisting has
the effect of denying a person or an entity the privileged opportunity of entering
into government contracts.
21. The writ petition is, hereby, allowed. No order as to costs.
(S. A. DHARMADHIKARI) (PRAKASH CHANDRA GUPTA)
JUDGE JUDGE
pn
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