Blacklisting Causes Civil Death, Clear Show Cause Notice & Due Process A Must: Bombay High Court

The court held that the railway officials had not given the petitioner a fair opportunity to defend his stand by failing to mention the possibility of debarment in the show-cause notice.

In a judgement last month, Justice Girish Kulkarni observed, "In the aforesaid circumstances, in my opinion a strong prima facie case has been made out by the petitioner for grant of interim measures pending the arbitral proceedings to the extent it debars the petitioner for a period of two years. It would be the requirement of law for the Court to stay the effect of such illegal condition being inserted in the termination letter dated 8 September, 2021, as such condition is prima facie void ab initio being contrary to the settled principles of law as laid down in the decisions as discussed above."

The court was hearing a petition filed by M/s Moonline Express Cargo Pvt Ltd (MECPL) against the Union of India through Divisional Railway Manager (Commercial). The issue involved a contract for grant of leasing rights in respect of parcel space in a specific train.

The Case

MECPL was awarded a contract for parcel space in a Special Express train operating between Lokmanya Tilak Terminus, Mumbai and Patna. The tender was floated by the Railways on March 3, 2021 – during the relatively normal period before the second wave of Covid-19 pandemic – and accepted on May 17, 2021, by when the second wave and related lockdowns had taken effect.

However, as per the allotment letter MECPL was asked to commence loading in the said train within 15 days of issuance of the letter of allotment.

The Railways issued a show-cause notice to MECPL on July 26, 2021 calling upon MECPL to start loading from August 1, 2021, failing which the allotment would stand terminated. Eventually, by a communication dated September 8, 2021, received by MECPL on October 16, 2021, the Railways not only terminated the allotment but also debarred the company from participating in future tenders for two years.

The issue involved the case was can the company be debarred from participating in future tenders when the show cause notice did not mention this aspect at all and it was issued only on the issue of cancelling the allotment/contract.

Arguments

Represented by Advocate Mutahhar Khan, MECPL pointed out its communications with the Railways which said that the time when tenders were floated and MECPL participated in the process, there was no second wave of Covid-19 and no lockdowns. However, when the Railways asked the company to commence the work, there were lockdown restrictions in Mumbai as well as Patna, therefore it was not possible for the company to commence the work.

Khan also argued that the lawful procedure to debar MECPL was given a complete go-by by the Railways in imposing a drastic consequence. He submitted that the action of debarring the petitioner was an action involving civil consequences and the respondent ought to have followed the due procedure, a specific show cause notice ought to have been issued and thereafter, following the principles of natural justice an appropriate order could have been passed.

Judgements of the Supreme Court in Erusian Equipment & Chemicals Ltd. v. State of West Bengal, Gorkha Security Services v. Government (NCT of Delhi) and Ors, Southern Painters versus Fertilizers & Chemicals Travancore Ltd. & Anr and UMC Technologies Private Limited Versus Food Corporation of India and Another were cited by Khan.

In response, Advocate TJ Pandian, appearing for the Railways, placed reliance on the reply affidavit of Dhirendra Singh, Divisional Commercial Manager, Central Railway, Mumbai CSMT and submitted that the tender documents under which the petitioner was issued the allotment letter, had a provision for appeal against cancellation or termination of lease contracts.

He submitted that therefore it was not correct for the petitioner to invoke the Arbitration Act. He, however, did not dispute that railways had not invoked the specific clause of the tender which mentions the condition with respect to debarring MECPL from participating in future tenders for a period of five years,

The order then notes that Pandian was not in a position to support the action of the respondent to debar the petitioner on the basis of the show cause notice which was issued to the petitioner.

Court Order

Justice Kulkarni observed that the Railways could not have debarred the petitioner for any period as the show cause notice was conspicuously silent on any action of a debarment/blacklisting to be taken against the petitioner and therefore no opportunity was available to the petitioner to defend an action of debarment.

"The petitioner could not have been taken by surprise by the respondent. If the respondent wanted to initiate any action against the petitioner by invoking clause 1.5 of the tender condition which according to Mr. Pandian would confer a contractual authority on the respondent to debar the petitioner, then necessarily the law would require issuance of a specific show cause notice on debarment, when such cause to debar stems under the contract between the parties, as in the present case," the court observed.

The court noted that the Supreme Court judgement in Erusian Equipment & Chemicals Ltd, which held the field for 46 years and several other judgements that followed that judgment, applied to this case.

Referring to the judgement in the case of UMC Technologies Private Limited, Justice Kulkarni noted that the Supreme Court had clearly stated that it was the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. The judgement also observed that blacklisting was equivalent to a civil death of a person and that principles of law were aptly applicable in the facts of the present case.

The court directed MECPL to invoke the arbitration clause and initiate further proceedings within 90 days or stand the risk of this interim order being vacated. It also allowed the Railways to initiate debarment proceedings, if it so desired, following the due process of law.

Case Title: Ms Moonline Express Cargo Pvt Ltd vs UoI through Divisional Railway Manager

Citation: 2022 LiveLaw (Bom) 30