Allahabad High Court Quashes DM's "Indefinite Blacklisting" Order For Violation Of Natural Justice, Imposes Rs One Lakh Cost

The Allahabad High Court has imposed a cost of Rs. 1 Lakh on District Magistrate for blacklisting petitioner for an indefinite period without giving an opportunity of hearing. The Court held that blacklisting/ debarment cannot be done for an indefinite period. Such period must be proportional to the offence committed by the party, held the Court.

The bench comprising of Justice Anjani Kumar Mishra and Justice Jayant Banerji held,

“The fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is blacklisted. The concerned authority is mandated to have an objective satisfaction given the fact that a disability is created by the order of blacklisting. Moreover, debarment is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractors.”

Petitioner contended that in 2020 a blacklisting order was passed without giving any show cause notice. Quashing that order, the High Court had directed the District Magistrate to pass reasoned order after considering the requests made by the petitioner. Representation made by the petitioner was rejected on grounds that the decision was made by the State Government and no guidelines provided the period of blacklisting.

Counsel for respondent argued that the order was blacklisting was passed against the petitioner as it was found that he had committed fraud in the tendering process.

The Court observed that the District Magistrate, Jhansi had written to the Principal Secretary, Minor Irrigation Department, Government of Uttar Pradesh, Lucknow highlighting irregularities in the tender invitation under 'Bundelkhand Package (Third Stage)' scheme. Upon inquiry, it was recommended that the tender process be cancelled, and further inquiry be held. Accordingly, the District Magistrate cancelled the tender.

In the inquiry conducted thereafter, several irregularities were found, and recommendations regarding actions against several engineers including the Executive Engineer and the accountant along with the firms involved be taken. Subsequently, the Deputy Secretary of the Government of Uttar Pradesh wrote to the District Magistrate, Jhansi stating that firms/contractors involved in the process be blacklisted and be barred from participating in government tenders in the future. Further directions were issued to lodge FIRs against such firms.

The Court observed that pursuant to the letter, 59 firms were barred for a period of 3 years from participating in tender processes.

The Court relied on Kulja Industries Limited Vs. Chief General Manager Western Telecom Project BSNL wherein the Supreme Court held that the decision to blacklist is subject to judicial review when the contract is with any state instrumentality. The Court held that fair hearing was an essential pre-condition to passing of a blacklisting order. Further, it was held that instead of the Court deciding the period of blacklisting, it must be left upon the authorities, who must form guidelines for the period of blacklisting based on the offence. Thus, by following doctrine of proportionality and forming guidelines, arbitrariness is removed, and transparency is inculcated in the process.

Further, reliance was placed on Vetindia Pharmaceutical Limited Vs. State of Uttar Pradesh and another, where the Apec Court held 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 organisation/institution for all times to come described as a civil death.”

The bench lead by Justice Mishra held that opportunity of hearing ought to have been granted to the petitioner so that the competent authority may record its objective satisfaction for blacklisting the petitioner. The Court held that blacklisting/ debarment cannot be permanent but only for a specified period depending upon the nature of the offence.

The Court held

“In view of the illegal procedure adopted by the respondents in blacklisting the petitioner without notice and extending the blacklisting for an indefinite period, and that too without any statutory sanction, this Court finds that it is a tainted exercise of power by the respondents.”

Accordingly, the Court held that Rs. 1lakh cost was to be paid to the petitioner.

Case Title: Ramraja Constructions Through Its Proprietor Jauhar Singh Having Its Office At Village Kolwa Barusagar District Jhansi v. State Of Up And 4 Others [WRIT - C No. - 6629 of 2024]

Counsel for Petitioner: Kartikeya Saran, Ujjawal Satsangi

Click Here To Read/Download Order