The Supreme Court, overturning the decision of Madhya Pradesh high court, remarked “this Court has consistently prescribed strict adherence to principles of natural justice whenever an entity is sought to be blacklisted.” And observed necessity of ‘unambiguous’ and ‘particular’ show-cause notice in case where consequence of such notice might be as severe as blacklisting.
Facts
In November 2016, the appellant agency was appointed by the FCI (Food Corporation of India) for recruitment of watchmen for the corporation. Later when the agency was conducting exams for recruitment of aforementioned employees for the corporation, the police arrested multiple individuals including some people from the appellant agency for leaking the exam question paper. The corporation issued a show-cause notice to the appellant agency asking them for an explanation, mentioning multiple clauses under which the conduct of the agency breached the contract by their failure to conduct fair and smooth examination. The appellant furnished a justification but it was not sufficient for the corporation after which the corporation again issued a final show-cause notice. After the appellant issued final report/explanation the corporation established the agency’s negligence beyond reasonable doubt and blacklisted the appellant for 5 years from entering any contract with the corporation further forfeiting the security deposit of the appellant. Aggrieved by the corporation the agency went to high court where they upheld the corporation’s decision after which the appeal was filed in the apex court.
Appellant’s plea
The appellant’s counsel submitted that they were only challenging the blacklisting and not the breach of contract. The counsel argued that the blacklisting was wrongful since the corporation had no power to do so under any provision of the bid document and further contended that there was no mention of any action of such nature in the show-cause notice which was against the requirements of natural justice. The counsel lastly submitted that due to the blacklisting, his client lost 5 other contracts which was unreasonable and disproportionate punishment to the appellant agency.
Respondent’s arguments
The respondent’s counsel contended that blacklisting of the agency was in public interest since leaking of exam papers not only breached the contract but also shook the confidence of public in the recruitment process of the corporation’s employees. The counsel further justifying the corporation’s decision, submitted that since it was mentioned in the bid document that such breach could result in blacklisting of the agency, the appellant was aware of the possibility of such consequences.
Court’s decision
The bench of Justice S Abdul Nazeer and Justice BR Gavai were of the opinion that such blacklisting must be spelled out in the show-cause notice. Dwelling on the severity of consequences of blacklisting the apex court remarked “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 person’s reputation and brings the person’s character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person.” The court held that it was under the basic principles of natural justice that the defendant against whom an action is sought must be aware of the consequences, thus in present case clear intention of blacklisting must’ve been spelled out in the show-cause notice. The court also recognised that effect of blacklisting on an agency may cause ‘domino effect’ due to which other government corporation also cancelled their contracts with the appellant may lead to ‘civil death’ of a person which shows excessive effects of such sanctions. The court in reference to the show-cause notice of the company stated that “A plain reading of the notice makes it clear that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its show cause notice” And held that the blacklisting by the corporation was against the principles of natural justice. The court finally set aside the Madhya Pradesh high court judgement and quashed the order of the corporation blacklisting the appellant.
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