Separate Notices Should Be Issued For Termination Of Contract And Suspension Of Registration, Even If Reason For Both Actions Is Same: MP High Court

The Indore bench of the Madhya Pradesh High Court recently quashed the suspension of a contractor's registration with the State Public Works Department, on account of lack of due process.

The petitioner had challenged the suspension of his registration following the termination of a construction contract. The court highlighted that any measures like blacklisting or suspension must follow a fair process, including the issuance of a separate show-cause notice and an opportunity for a hearing.

A division bench of Justice Vivek Rusia and Justice Binod Kumar Dwivedi said,“The suspension or blacklisting for a limited period of a contractor is liable to be done in contemplation of any inquiry or adjudication on allegations against the contractor. These are the temporary measures to be taken till the conclusion of the enquiry or for limited period.For the purpose of recovery of the amount, the Apex Court in the case of Tulsi Narayan Garg (supra) has held that the quantified claim cannot be recovered unless the reference is decided by the Tribunal. But so far as the action of suspension / blacklisting is concerned, these measures are to be taken immediately against the contractor, for which the Department is not required to wait till the final adjudication by the Tribunal becomes that may take years together.Normally the Tribunal decides the matter in 5 to 10 years, therefore, action of the suspension or blacklisting may not be warranted in a given case.Therefore, blacklisting or suspension can be done simultaneously along with the order of termination but for which separate show-cause notice is liable to be issued or opportunity of hearing ought to have been granted as held by the Apex Court in catena of judgments”.

As per the facts, Madhya Pradesh Public Works Department (PWD) issued a contract to the petitioner, a registered contractor with the department, to construct an archery ground at Girls Krida Parisar in Jhabua. Delays occurred and the project could not be completed within the 12-month deadline. The petitioner contented that the delay was due to the respondents' late approval of working drawings and layout. Eventually the contract was terminated and in February 2022 the Additional Project Director suspended the petitioner's registration for two years. The petitioner contended that the suspension was arbitrary and he was not given an opportunity to be heard before this measure was imposed.

The respondent authorities argued  that reasons for termination of contract and suspension of registration are the same. It was argued that the petitioner was given a show-cause notice and reply was obtained; since the reply was not found satisfactory, the contract was terminated as well as registration has been suspended for two years. It was contended that the registration of the contract with the PWD is covered under a March 24, 2015 Circular therefore, no interference is called for.

The high court observed that though the petitioner was served with a show-cause notice before issuing the order of termination of contract which he duly replied, but he was not given any opportunity of hearing. 

"The petitioner was given a show-cause notice under Clause - 27 of the agreement which only mandates termination of contract, not suspension of registration. Paragraph - 3 of the Circular dated 24.03.2015 says that competent authority shall take a decision for suspension of registration or placing the name in the blacklist of contractor considering the seriousness of the conduct," the court said. 

The high court said that the whether the petitioner contractor falls under any of the conditions listed in the 2015 circular for blacklisting or suspension, the same is "serious in nature" and  an "opportunity of hearing ought to have been given by issuing a show-cause notice to him in order to submit explanation or suitable reply". 

The court cited the Supreme Court's decision in The Blue Dreamz Advertising Pvt. Ltd. & Another v/s Kolkata Municipal Corporation & Others (2024), where it was held that "too readily invoking the debarment for ordinary cases of breach of contract where there is a bona fide dispute, is not permissible". 

The High Court thereafter quashed the order February 3, 2022 suspending the petitioner's registration. 

Counsel for petitioner: Adv. Siddhartha Kumar Jain

Case title: Devendra Kumar Patel Versus The State Of Madhya Pradesh And Others

Case no: WP-4318-2022

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