Blacklisting Of Contractor Must Be On The Touchstone Of Reasonableness : Patna HC [Read Judgment]

Blacklisting Of Contractor Must Be On The Touchstone Of Reasonableness : Patna HC [Read Judgment]Patna HC

The Patna High Court rendered a judgement on 25.11.2019 on how the blacklisting of a dealer needs to be exercised on the touchstone of reasonableness in terms of the contract alone. On the basis of the same, the impugned order of blacklisting was set aside.

In the case of M/s Ganpati Roadways v. The Indian Oil Corporation Ltd. & Ors., the Petitioner company submitted that the decision of the Respondent to impose the penalty on the Petitioner and their blacklisting was not done in accordance with the disciplinary guidelines and the quantum of punishment had been unduly enhanced.
The counsel for the Petitioner, Mr. Gautam Kejriwal, submitted that the Respondent was not justified in passing an order of blacklisting. He also submitted that as per the ITDG/Tender Agreement, if there had been a failure of payment of penalty on behalf of the Petitioner, then action could be taken towards the termination of contract and forfeiture at the most. Additionally, the Petitioner also stated that there was no established case of pilferage/non-delivery of the product, and blacklisting would cause a civil death to a business entity.
The counsel for the Respondent, Mr. Ankit Katriar stated that the Petitioner was vicariously responsible for all the misconduct of its employees. He also relied upon the Supreme Court judgment of MunicipalCouncil Neemuch v. Mahadeo Real Estate to submit that the scope of judicial review of administrative action is very limited and any interference by the High Court would be required only when the impugned decision is found to be vitiated by an apparent error of law.
OBSERVATIONS OF THE COURT
Justice Rajeev Ranjan Das of the Patna High Court considered the Clause 8.2.2 regarding "Penalties upon detection of malpractice/irregularities" and rendered the following observations on the aspect of blacklisting:
"The terms of the disciplinary guidelines have been very specific, the mere default by one tanker cannot become an instance of blacklisting on its own if the employer has not proceeded to take a blacklisting proceeding against the contractor for the default and blacklist the Tank Trucks after following the procedure."
The Court also discussed judgments of the Apex Court such as M/s Kulja Industries Ltd. v. Chief Gen. Manager, W.T. Proj., BSNL & Ors. (AIR 2014 SC 9) and Erusian Equipment & Chemical Ltd. v. State of West Bengal and Anr. [(1975) 1 SCC 70] with regard to the principles of blacklisting. These judgments stated that blacklisting had the effect of preventing a person from entering into a lawful relationship with the Government for purposes of gains and that the Authority passing any such order was required to give a fair hearing before passing an order blacklisting a certain entity.
It held that though the Respondent retained the power to blacklist a company, it had to be done on the touchstone of reasonableness in terms of the contract alone.
"So far as the power of blacklisting is concerned, it definitely lies with the respondent Corporation, but such drastic powers must be exercised on the touchstone of reasonableness in terms of the contract alone. This Court has already highlighted the second part of the Clause 8.2.2. of the disciplinary guidelines. This being a case where the Petitioner has been able to demonstrate non-consideration of materials available on the record leading to passing of an order of punishment is extreme and is totally based on the misconstruction of the provision of the disciplinary guidelines, this Court finds it just and proper to exercise its extra-ordinary writ jurisdiction under Article 226 of the Constitution of India to interfere with the impugned order."