Mere Existence Of Blacklisting Clause In Work Agreement Doesn't Entitle Supplies Corporation To Blacklist Supplier Without Notice: Andhra Pradesh HC
The Andhra Pradesh High Court has said that mere existence of a clause in the work agreement empowering the State Civil Supplies Corporation to blacklist a supplier would not entitle the Corporation to go ahead with the blacklisting without serving a notice expressing its mind to blacklist the supplier.Justice Ravi Nath Tilhari made the observation while quashing the Corporation’s order...
The Andhra Pradesh High Court has said that mere existence of a clause in the work agreement empowering the State Civil Supplies Corporation to blacklist a supplier would not entitle the Corporation to go ahead with the blacklisting without serving a notice expressing its mind to blacklist the supplier.
Justice Ravi Nath Tilhari made the observation while quashing the Corporation’s order to impose a penalty and blacklist a flour mill company for one year.
Finding the order not in compliance with the principles of natural justice, the court said,
“Though the agreement, contains the provision for blacklisting the supplier, by the Corporation, but such power had to be exercised in consonance with the principles of natural justice of affording opportunity of hearing to the person concerned against the proposed action of blacklisting, specifying the reasons on which such action was to be taken.”
The court also observed that in spite of the alternative remedy of arbitration under the agreement, the writ petition is maintainable.
It was hearing the flour mill company's plea challenging the impugned notice dated 07.06.2016, by which the Vice Chairman and Managing Director of the Andhra Pradesh State Civil Supplies Corporation Limited (APSCL) imposed penalty of Rs.6 lakhs @ Rs.2 lakh per sample, for three samples, and blacklisted the petitioner for a period of one year.
Brief Facts
An agreement dated 10.06.2015 was executed between the petitioner and the Corporation for supply of whole meal wheat atta of 2,728.769 MTS quantity. The petitioner supplied the product to the Corporation in packaging under the agreement. It was the case of the petitioner that the petitioner company got certification after conducting analytical testing in the Directorate of Marketing and Inspection Regional Agmark Laboratory, Guntur, in all batches and the product was certified.
The product, certified as conforming to the specifications, was packed in 1 kg polythene bags and delivered to the Corporation's authorized agencies in secondary packaging of 50 bags. The entire stock was supplied on time and in compliance with the agreement's terms.
However, the petitioner later received a letter from the Corporation requesting an explanation for the non-conformance of the supplied wheat atta's quality parameters. The letter referred to the analysis report by the third-party agency M/s. NCML, Hyderabad, appointed under a clause of the agreement, which reported non-conformance of quality parameters exceeding the limits.
The petitioner submitted that the notice did not disclose the batch number, date of manufacturing and the parameters in which it has exceeded the limit and requested to provide such information in detail.
The Corporation initially passed an order dated 05.03.2016, against which the petitioner sent legal notice and thereafter the order/notice dated 07.06.2016 of blacklisting was sent.
Arguments
The main contentions of the petitioner was he got several quantities of the product testified for quality testing analysis through the Directorate of Marketing and Inspection Regional Agmark Laboratory, Guntur, which issued certificates regarding 100% confirmation of quality specifications, but the Corporation got it tested through its own appointed third party agency, which gave different reports on quality specifications. The analysis report obtained by the Corporation was not furnished to the petitioner, the court was told.
The counsel of the petitioner submitted that any opportunity of hearing with respect to the action of blacklisting was not provided. The show cause notice did not mention about the proposed action of blacklisting, it was alleged. Consequently, the blacklisting of the petitioner for one year being in violation of the principles of natural justice, cannot be sustained, it was argued.
The petitioner also argued that if the whole meal wheat atta did not meet the specifications, the Corporation should have rejected the stock and allowed the petitioner to replace it at their own cost, as per Clause No.10 (b) & (c) of the agreement. However, the Corporation did not reject any quantity and instead used the non-confirming stock to impose a penalty on the petitioner, it was argued.
The respondent argued that the petition raises questions of fact regarding the quality of the supplied product and the alleged violation of the agreement's terms and conditions. It was contended the petitioner should resolve the dispute through arbitration, as per the arbitration clause.
Verdict
After hearing both the sides, the court held that a perusal of the show cause notice does not show that the copy of the third party report was supplied to the petitioner along with the notice to enable them to submit reply against it.
The court noted that the petitioner requested the Corporation to inform about the details of whole meal wheat atta, details of batch number, manufacturing date and parameters in which it has exceeded the limits, but there is nothing on record to show that the same was informed to the petitioner.
“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," said the court.
The Court referred to the case of UMC Technologies (P) Ltd. Food Corpn. of India wherein the Apex Court referred to the judgment in Nasir Ahmad v. Custodian General, Evacuee Property wherein it was 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 notice to answer the case against him.
It said that while the agreement does include a provision for the Corporation to blacklist the supplier, this power must be exercised in accordance with the principles of natural justice. This includes providing the person with an opportunity to be heard and explaining the reasons for the proposed blacklisting action, it added
The court also referred to Erusian Equipment and Chemicals v. State of W.B wherein the Apex Court held that the blacklisting order does not pertain to any particular contract.
After referring to catena of judgments, the Court came to the conclusion that,
“A clear legal position emerges that for a show-cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist the notice. Such a clear notice is essential for ensuring that the person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting.”
The court said that It is evident from the material on record that no such opportunity of hearing was given to the petitioner before the order of blacklisting.
"In view of the discussion as made above, the impugned order of penalty and blacklisting has been passed in violation of the principles of natural justice of affording opportunity of hearing to the petitioner," said the court.
Case Title-M/s. Coromandel Roller Flour Mills (P) Ltd v. The Andhra Pradesh State Civil Supplies Corporation Limited
Citation: 2023 LiveLaw (AP) 19
Counsel for the Petitioner: Mr. P. Narasimha Rao
Counsel for respondents : Mr. N. Manikanta