No Blacklisting Without Prior Hearing : Kerala HC Quashes Decision To Exclude JV Of Contractor Accused Of 'Palarivattom Flyover Scam'

The High Court of Kerala has reiterated the principle that the blacklisting of a contractor cannot be done without affording an opportunity of prior hearing.

Based on this premise, a bench of Justice P B Suresh Kumar quashed the decision of Kerala State Transport Project (KSTP) to exclude the joint venture of M/s RDS Project Ltd and Cherian Varkey Constructions from the bid for the execution of a particular road development work.

The KSTP excluded the JV from the bid citing the reason that RDS was facing a vigilance case over the alleged scam with respect to the construction of Palarivattom flyover in Kochi.

Challenging the exclusion, both the JV partners approached the High Court by way of writ petition under Article 226 of the Constitution of India. They submitted that their bid otherwise satisfied the eligibility criteria under the relevant guidelines and that the disqualification was done without any prior hearing.

During the pendency of the writ petition, the KSTP awarded the bid to another party.

The Court noted that the exclusion of the JV from the bid amounted to blacklisting. This was on the basis of the description given to "blacklisting" by the SC that it was the the decision of the State or its instrumentalities to not to deal with a person or entity on account of the undesirability of entering into the contractual relationship with such person or entity is called blacklisting(Patel Engineering Limited v. Union of India and others, (2012) 11 SCC 257)

Since the blacklisting was done without prior notice, it was held to be arbitrary and unconstitutional.

"...neither the Joint Venture of the petitioner nor M/s. RDS project Ltd has been given an opportunity to represent their case before they are put on blacklist. As found earlier, they are blacklisted solely on the premise that a case has been registered against the Managing Director of M/s. RDS Project Ltd with the necessary allegations falling under Section 13(1)(d) read with Section 13(2) of the Prevention Of Corruption Act and also under Section 120B of the Indian Penal Code. In the light of the decisions of the Apex Court in Erusian Equipment & Chemicals Limited v. State of West Bengal, (1975) 1 SCC 70, Patel Engineering Ltd. and Gorkha Security Services v.Government (NCT of Delhi), (2014) 9 SCC 105, the decision to exclude the Joint Venture of the petitioner shall be held to be arbitrary and violative of all principles of natural justice and Article 14 of the Constitution".

The court also held the "post-tender negotiations" with another bidder, who was eventually awarded the contract, to be improper and contrary to norms. Therefore, that decision of KSTP to award the work to another bidder was quashed. As per the relevant norms and guidelines, the only option left for KSTP after disqualification of the eligible bid of the JV was to re-tender the whole process.

The Court directed the the State Government to complete the proceedings contemplated for blacklisting M/s RDS Project Ltd., after giving them notice indicating the grounds on which they are proposed to be blacklisted from undertaking Government works.

Senior Advocate Joseph Kodianthara appeared for RDS Projects Ltd, and Advocate Santhosh Mathew appeared for Cherian Varkey Constructions Ltd.

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