Courts Can Examine Blacklisting Order In Writ Jurisdiction To Ensure Proportionality, Adherence To Natural Justice: Allahabad High Court

The Allahabad High Court has held that the Courts while exercising writ jurisdiction have the power to examine blacklisting order to ensure that principles of natural justice and doctrine of proportionality are followed.

The bench comprising Justice Shekhar B. Saraf and Justice Manjive Shukla held State instrumentalities though vested with the power of blacklisting must conform to fairness and reasonableness.

The Court held that “that any governmental or public authority's decision to blacklist a contractor is open to judicial review, ensuring adherence to natural justice principles, particularly audi alteram partem and the doctrine of proportionality. This means courts can examine such decisions to ensure they are just and balanced.”

Case Background

Petitioner approached the High Court against termination of its contract for running the Kaithi Fee Plaza by the Chief General Manager, Commercial Operations, National Highway Authority of India. Further, petitioner has been debarred from the list of pre-qualified bidders for a period of six months.

Counsel for petitioner argued that the show cause notice was issued with a premeditated mindset and the reply of the petitioner was not considered while passing the order. Further, it was contended that imposing damages as well as debarment was against principle of proportionality.

Per contra, counsel for NHAI stated that due to several infractions on part of the petitioner, the show cause notice was issued. It was argued that due to glaring infractions, termination of contract and blacklisting were necessary despite imposition of penalty.

High Court Verdict

The Court referred to Siemens Limited v. State of Maharashtra and Others, where the Supreme Court held that a writ would be maintainable in matters where from a perusal of the show cause notice it is evident that the authorities have made up their mind against the petitioner's liability and the show cause notice was a mere formality.

The Court held that an exception to the general rule that show cause notices ought not to be interfered with in writ jurisdiction, is when the show cause notice is issued with a premeditated mindset, making any further proceedings a mere formality. It was held that any further inquiry or orders in such cases may not be impartial or productive.

“A quasi-judicial authority must record reasons in support of its conclusions. The ongoing judicial trend in all countries committed to the rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. Insistence on reason is a requirement for both judicial accountability and transparency. Reasons in support of decisions must be cogent, clear, and succinct. Therefore, for the development of law, the requirement of giving reasons for the decision is of the essence and is virtually a part of 'due process'.”

The Court noted that in M/s Kulja Industries Limited v. Chief Gen. Manager W.T. Proj. BSNL & Ors., the Supreme Court had held that fair opportunity of hearing is necessary before passing any blacklist order. It was further held that blacklisting orders can be interfered with in writ jurisdiction if they suffer from arbitrariness and discrimination.

The bench headed by Justice Saraf held that any party awarding a contract, including State instrumentalities have the power to blacklist contractors. It was further held that the Courts have the power to judicially review whether decision of blacklisting a contractor adheres to the principles of natural justice and doctrine of proportionality.

“The decision to blacklist must also be reasonable, fair, and proportionate to the gravity of the alleged offence or breach, avoiding arbitrariness or discrimination. Additionally, actions by State authorities, including blacklisting decisions, must pass the reasonableness test under Article 14 of the Indian Constitution, which ensures equality before the law and prevents arbitrary State actions.”

Further, the Court relied on the judgment in Gp. Capt. Rajib Lochan Dey v. Union of India where the Calcutta High Court held that blacklisting must be fair and proportionate to the infractions by the contracting party. It was held that principles of natural justice and principles of non-arbitrariness, non-discrimination must be followed so as to pass the test of reasonableness under Article 14 of the Indian Constitution. Lastly, it was held that the decision of blacklisting must be reasoned and on relevant grounds of public interest.

The Court held that the impugned order of blacklisting was not founded on the grounds mentioned in the show cause notice which was issued to the petitioner. Further, it was noted that the petitioner had already deposited Rs. 8 Lakhs as penalty. The Court observed that the order of blacklisting was passed in “a casual manner” without considering the penalty which had already been deposited by the petitioner for various infractions.

Since the order impugned was violative of principles of natural justice as well as doctrine of proportionality, it was set aside and the writ petition was allowed.

Case Title: A.K. Construction Company v. Union of India and others [WRIT - C No. - 20223 of 2024

Counsel for Petitioner: Anoop Trivedi, Senior Advocate assisted by Devansh Mishra and Vibhu Rai

Counsel for Respondent: Mahendra Pratap

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