Blacklisting Of An Entity By Govt In A Contractual Matter Is Subject To Doctrine Of 'Proportionality': Orissa High Court

"It is also well settled that the High Court, while exercising power of judicial review, would be reluctant to substitute its own opinion on the quantum of penalty or punishment imposed. However, if the High Court finds the punishment as imposed shockingly disproportionate, the interference with the same would be warranted even if it is a contractual dispute."

Brief Facts:

The petitioner herein had got the tender from the respondents to construct a bridge over the river Suktel on Tamla-Mudassir Road in the district of Bolangir under "Biju Setu Yojana". The work was completed before time and handed over to the respondents. However, after about four years of its completion, some horizontal cracks were traced on the bridge. Then, the 3^rd respondent requested the Government to allow the Executive Engineer to take up the work of dismantling and related construction, which would be undertaken by the petitioner after diversion of the traffic.

Consequently, the petitioner was instructed by the Executive Engineer to go ahead with the preliminary preparation for dismantling and related construction work. Notably, there was no formal permission by the Government for such work. The petitioner took up the dismantling work without having any permission of the authority and without taking any precaution to ensure safety of the labourers by making any arrangement for centering and shuttering prior to dismantling of the slab, which led to collapse of the distressed slab on 29.04.2020, causing death of two persons on the spot, apart from causing injuries sustained by other persons.

After that, the petitioner was issued a show-cause notice and subsequently, it was blacklisted for all days to come from participating or bidding for any work to be undertaken by the Government of Odisha and also banning from transacting business with Government of Odisha either directly in the name of proprietary bidder or indirectly under different name or title.

Contentions of the Parties:

Senior Counsel Mr. Jashobanta Dash, appearing for the petitioner, out of multiple arguments, vehemently submitted that the action on the part of the opposite parties in blacklisting his client for all times to come is arbitrary and contrary to the "doctrine of proportionality". He placed reliance on the Apex Court's decisions in M/s Erusian Equipment & Chemicals Ltd. v. State of West Bengal & Anr.; UMC Technologies Private Ltd v. Food Corporation of India and Gorkha Security Services vs Govt. (NCT of Delhi) & Ors., wherein it was clearly held that the activity of the government has a public element and, therefore, there should be fairness and equality.

Per Contra, for the opposite parties, Additional Standing Counsel Mr. Tarun Pattnaik submitted that in cases of this nature where the petitioner has forgotten its responsibilities as a contractor while executing the work in a lackadaisical fashion, the Government as an employer of contract has taken appropriate steps to arrest any future mishap endangering the lives and property of the State.

Court's Observations & Ruling:

The Court ruled that authority must act in fairness while putting a person in the blacklist. The principles of natural justice are attracted in case a person is to be deprived of entering into business relationship, particularly so when such a person has 'reasonable expectation' of making a gainful contract with the Government.

It held that the Government or instrumentalities of State are under a constitutional obligation not to discriminate. They owe a duty towards citizens to act fairly, without fear or favour. If the State unfairly puts a party on blacklist, it will amount to denial of an equal opportunity of being able to compete with his adversaries. Blacklisting any person would mean deprivation of an equal opportunity of competing with others. Thus, where valuable rights are sought to be taken away by the Government in depriving of a person dealing with it, the writ Courts cannot act as 'mere spectator' and shall intervene to do justice to the aggrieved party.

The Court then proceeded to discuss the stigma that follows such blacklisting and it also reminded the employers/authorities that blacklisting cannot be for an indefinite period.

"Further, plethora of judgments of the apex Court and High Courts have unequivocally resonated and reminded the employers that blacklisting the contractor cannot be for an indefinite period. The order by which a contractor is blacklisted must mention the period for which he is put on the blacklist because blacklisting cannot debar a party forever as a registered contractor."

It relied upon the principle laid down by the Apex Court in VET India Pharmaceuticals Limited v. State of Uttar Pradesh & Anr., wherein it was observed that an order of blacklisting operates to the prejudice of a commercial person not only "in praesenti", but also puts a taint, which attaches far beyond and may well spell the death knell of the organization/institution for all times to come described as a 'civil death'. Such observations of the apex Court, the Court observed, fairly describe the effect of the impugned order on the petitioner.

The Court held that it is well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality.

Resultantly, the Court concluded that the decision of the State to blacklist the petitioner has been done in a "hush hush" manner without giving a proper hearing. Further, the application of the doctrine of proportionality has not been kept in mind in proper perspective while putting a punitive measure like blacklisting without a specified period in the impugned order. Therefore, it held that the writ petition succeeds to the extent that the impugned order of blacklisting the petitioner deserves a revisiting by the State authority.

Case Title: M/s. Ram Kumar Agrawal Engineers Pvt. Ltd. v. State of Odisha & Ors.

Case No.: W.P.(C) No. 14053 of 2020

Date of Judgment: 04 March 2022

Coram: Justices Dr. B.R. Sarangi and S.K. Panigrahi

Authored by: Justice S.K. Panigrahi

Counsel for the Petitioner: Mr. Jashobanta Dash, Sr. Adv. along with Mr. Prabodh Ch. Nayak, Adv.

Counsel for the Respondents: Mr. Tarun Pattnaik, Additional Standing Counsel

Citation: 2022 LiveLaw (Ori) 22