Show Cause Notice Must Clearly Mention Intention To Blacklist The Noticee: Supreme Court

A show cause notice, to constitute the valid basis of a blacklisting order, 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 noticee, the Supreme Court observed while setting aside a blacklisting order issued against Umc Technologies Private Limited.

Food Corporation of India had issued an order to blacklist the company from participating in any future tenders of the Corporation for a period of 5 years. The Apex Court was approached against the order of the High Court which dismissed the challenge against this blacklisting order. The contention raised was that the action of blacklisting could not have been taken without specifically proposing/contemplating such an action in the show-cause notice.

Agreeing with this contention, the bench comprising Justices S. Abdul Nazeer and BR Gavai observed that 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. Referring to the show cause notice, the court said 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.

The court also added that the mere existence of a clause in the Bid Document, which mentions blacklisting as a bar against eligibility, cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show cause notice. The court said:

"The Corporation's notice is completely silent about blacklisting and as such, it could not have led the appellant to infer that such an action could be taken by the Corporation in pursuance of this notice. Had the Corporation expressed its mind in the show cause notice to black list, the appellant could have filed a suitable reply for the same. Therefore, we are of the opinion that the show cause notice dated 10.04.2018 does not fulfil the requirements of a valid show cause notice for blacklisting. In our view, the order of blacklisting the appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law."

Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. 

The court also observed that Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts and hence there should be strict adherence to principles of natural justice whenever an entity is sought to be blacklisted. It said:

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 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.

Case: UMC TECHNOLOGIES PRIVATE LIMITED vs. FOOD CORPORATION OF INDIA [CIVIL APPEAL NO. 3687 OF 2020] 

Coram: Justices S. Abdul Nazeer and BR Gavai

Counsel: Sr. Adv  Gourab Banerji, Adv Ajit Pudussery

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