Blacklisting Of An Entity Amounts To 'Civil Death', Must Be Justifiable And Proportionate: Supreme Court

While setting aside a blacklisting order passed by Kolkata Municipal Corporation against a commercial entity, the Supreme Court recently observed that blacklisting orders are a "drastic remedy" and as such, they ought to be justifiable as well as proportionate.

"All these reasons fall far short of rendering the conduct of the appellant in the present case, so abhorrent as to justify the invocation of the drastic remedy of blacklisting/debarment. The appellant very clearly has been subjected to a disproportionate penalty. The Corporation has lifted a sledgehammer to crack a nut...Merely saying that the blacklisting order carried reasons is not good enough. Do the reasons justify the invocation of the penalty of blacklisting and is the penalty proportionate, was the real question", said the Bench of Justices BR Gavai, Sanjay Karol and KV Viswanathan.

It was further observed that if a case reflects ordinary breach of contract, and the explanation offered by the person sought to be debarred raises a bonafide dispute, blacklisting as a penalty ought not to be resorted to.

"Debarring a person albeit for a certain number of years tantamounts to civil death inasmuch as the said person is commercially ostracized resulting in serious consequences for the person and those who are employed by him."

The Court was dealing with the case of one Blue Dreamz Advertising Pvt. Ltd. (petitioner), which was debarred by the Kolkata Municipal Corporation for 5 years after a tender work dispute.

Initially, a Single Bench of the Calcutta High Court had set aside the debarment order passed against the petitioner, but in appeal, a Division Bench ruled in favor of the Corporation. The Division Bench noted that the petitioner was given a hearing and the debarment order could not be held to be unreasonable, unfair or disproportionate. Against this decision, the petitioner filed the instant petition.

Taking into account an arbitration award passed in favor of the petitioner (after due set off), the Supreme Court observed that the dispute between the parties was a bonafide civil dispute and right from the inception, there were issues with regard to fulfilment of reciprocal obligations in the bid document.

The Court further enunciated that debarment is to be considered when an entity poses harm to public interest.

"...debarment as a remedy is to be invoked in cases where there is harm or potential harm for public interest particularly in cases where the person's conduct has demonstrated that debarment as a penalty alone will protect public interest and deter the person from repeating his actions which have a tendency to put public interest in jeopardy".

In the context of consequences of blacklisting, it was remarked that a debarment order not only prohibits the entity from dealing with the concerned employer, but also proscribes its dealings with other entities.

On facts, the Court considered that the respondent-Corporation was a statutory body vested with the duty to discharge public functions, not a private party, but the High Court failed to consider the same and apply the proportionality test. Outlining the errors in the Division Bench's ruling, the court said,

"There has been no enquiry by the Division Bench as to whether the conduct of the appellant was part of the normal vicissitudes in business and common place hazards in commerce or whether the appellant had crossed the rubicon warranting a banishment order, albeit for a temporary period in larger public interest."

Case Title: THE BLUE DREAMZ ADVERTISING PVT. LTD. & ANR. VERSUS KOLKATA MUNICIPAL CORPORATION & ORS., SPECIAL LEAVE PETITION (CIVIL) NO. 11682 OF 2018

Citation : 2024 LiveLaw (SC) 559

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