Madhya Pradesh High Court
Upto Mark Advertising Pvt. Ltd. Through ... vs Indore Municipal Corporation on 6 May, 2024
Author: Sushrut Arvind Dharmadhikari
Bench: Sushrut Arvind Dharmadhikari
1
IN THE HIGH COURT OF MADHYA PRADESH
AT I N D O R E
BEFORE
HON'BLE SHRI JUSTICE SUSHRUT ARVIND
DHARMADHIKARI
&
HON'BLE SHRI JUSTICE GAJENDRA SINGH
ON THE 6TH OF MAY, 2024
WRIT PETITION No. 4059 of 2024
BETWEEN:-
1. UPTO MARK ADVERTISING PVT. LTD. THROUGH
ITS DIRECTOR SHRI RAVI CHOUBEY S/O SHRI GANESH
CHOUBEY, AGED ABOUT 41 YEARS, OCCUPATION:
BUSINESS R/O 53, ASHOK VIHAR NEAR TILAK NAGAR
INDORE (MADHYA PRADESH)
2. MIRACLE EVENTS THROUGH SHRI PRITESH
SHRIVASTAV S/O SHRI SURENDRA SHRIVASTAV, AGED
ABOUT 44 YEARS, OCCUPATION: BUSINESS 144B
CHIKITSAK NAGAR INDORE (MADHYA PRADESH)
....PETITIONERS
(BY SHRI VIJAY KUMAR ASUDANI , ADVOCATE)
AND
INDORE MUNICIPAL CORPORATION, THROUGH
1. COMMISSIONER, NAGAR PALIKA NIGAM ROAD
INDORE (MADHYA PRADESH)
SUPERINTENDING ENGINEER (PMAY) INDORE
MUNICIPAL CORPORATION PRADHANMANTRI
2.
AAVAS YOJNA 108-109 FIRST FLOOR, PALIKA PLAZA,
INDORE (MADHYA PRADESH)
.....RESPONDENTS
(BY SHRI LUCKY JAIN, ADVOCATE)
2
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Reserved on : 22.04.2024
Pronounced on : 06.05.2024
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This Writ Petition having been heard and reserved for order,
coming on for pronouncement this day, Hon'ble Shri 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 06.02.2024 (Anexure-P/8) passed by the Respondent No. 2,
whereby the petitioner company has been blacklisted for a period of five
years as also the contract has been terminated and the security deposit of
Rs. 7.5 lakhs has been forfeited.
3. At the outset, learned counsel for the petitioner fairly stated that so
far as forfeiture of security deposit and termination of contract is
concerned, the petitioner is having the remedy under Arbitration Clause
prescribed in the agreement, therefore, this petition is confined only to the
order of blacklisting which could not have been passed for reasons inter-
alia:
(i) Because there is no clause in contract prescribing default of
blacklisting;
(ii) Because no opportunity of personal hearing was provided to the
petitioner before blacklisting;
(iii) The effect of blacklisting is a civil death for a company and has a very
serious consequence, therefore, the order of blacklisting is not sustainable;
(iv) Because no reasons have been assigned for blacklisting the petitioner
company.
4. Learned counsel further contended that the order impugned is non-
speaking and unreasoned order. The Apex Court in the case of Kranti
Associates Vs. Shri Masood Ahmad Khan reported in (2010) 9 SCC
496 has held that even the order of blacklisting should record reasons and
should be a speaking order. He further contended that the Apex Court in
various judgments have decided the issue with regard to blacklisting which
provides for personal hearing.
5. 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).
6. The learned counsel for the petitioner further contended that without
providing the opportunity of hearing to the petitioner, straightaway order
impugned dated 06.02.2024 has been passed. For the aforesaid reasons, the
impugned order sofaras it relates to blacklisting deserves to be set aside.
7. The brief facts of the case are that the petitioner No. 1 is a Pvt. Ltd.
Company duly incorporated under the provisions of Companies Act, 1956.
Whereas the petitioner No. 2 is a business partner of petitioner No.1 which
is a joint venture company. Pursuant to NIT floated by respondent
corporation for branding and marketing agency for disposal of housing unit
under the PMAY Indore, the petitioner submitted the bid. The bid was
accepted vide letter dated 31.01.2019. Thereafter, an agreement was
entered into between the parties on 18.02.2019 bearing Agreement No.
4/PMAY.
8. That on 05.01.2024, a show cause notice was issued to the petitioner
alleging booking of one Flat i.e. A03/805 a sum of Rs. 1.50 lakhs in excess
has been recovered by one Jugal and Neha Gaur who are stated to be
employees of petitioner hence a notice for suspension or termination of
contract as per clause 21 of the agreement as well as for blacklisting and
lodging of FIR was issued. The allegations were denied by submitting a
reply dated 09.01.2024, that Jugal and Smt. Neha Gaur are not employees
of the company and their services have been terminated in the month of
May, 2023. Therefore, issuance of notice after seven months itself is bad.
9. Per contra, Shri Lucky Jain learned counsel appearing for the
respondent opposed the prayer and submitted that due opportunity of
hearing was granted to the petitioner and as such, the order impugned
passed by the respondents is absolutely in accordance with law. No
interference is called for and the writ petition is liable to be dismissed.
10. Heard the learned counsel for the parties and perused the record.
11. The Supreme Court in case of M/s. Erusian 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 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.
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 be 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 have 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 of 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 appellant. The appeal is thus disposed of.
13. In case of Grosons Pharmaceuticals (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 show 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. We are, 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 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 to verify 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 ground alone, the order of 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 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
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 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 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 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."
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,
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 be 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 has
the effect of denying a person or an entity the 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 from participating in future tenders even though the
impugned blacklisting order was, in fact, limited to the
Corporation's Madhya Pradesh regional office. 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 of 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 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."
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
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.
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.
20. Thus, it is clear that in the present case, the order impugned dated
06.02.2024, so far as blacklisting is concerned, suffers from the violation
of principle of audi alteram partem and as such, the order sofaras it relates
to blacklisting is hereby set-aside. The order regarding blacklisting
contains no reasons, therefore, this order cannot be allowed to stand.
Accordingly, the same is hereby set aside.
21. Resultantly, the writ petition is hereby allowed to the extent
indicated hereinabove. It is made clear that so far as the order regarding
forfeiting the security amount and termination of contract is concerned, the
petitioners would be free to avail the remedy in accordance with law and
as per the agreement.
(S.A. DHARMADHIKARI) (GAJENDRA SINGH)
JUDGE JUDGE
Vatan
VATAN SHRIVASTAVA
2024.05.06 18:49:06
+05'30'
