Duration Of Blacklisting Cannot Be Solely 'Per Offence' : Supreme Court Disapproves Guidelines Framed By Odisha Govt.

The Supreme Court observed that duration of blacklisting cannot be solely per offence.

The court disapproved the guidelines issued by the Odisha Government that blacklisting period per offence shall be limited to three years subject to an overall maximum cumulative period of  ten years for multiple offences.

"In a given case, it may happen that the commission and omission is very grave and because of the serious lapse and/or negligence, a major incident would have taken place. In such a case, it may be the contractor's first offence, in such a case, the period/duration of the blacklisting/banning can be more than three years.", the bench comprising Justices MR Shah and BV Nagarathna observed.

The court, though did not decide the validity of these guidelines since they were not challenge, said that the State Government may suitably amend and/or modify the same. What we have observed above can be a guide while determining the period of debarment/blacklisting, the bench said.

In this case, the Orissa High Court quashed a Blacklisting order passed by the State against a contractor holding that the order of blacklisting was in violation of the principles of natural justice. The contractor was awarded a contract for construction of a flyover over the railway level crossing at Bomikhal Junction in Bhubaneswar. In the year 2017, a ten meter slab of the flyover collapsed during concreting of the railway over bridge at the level crossing, which resulted in loss of life and property. One person died and eleven others were injured.  

In appeal filed by the State, the Apex Court bench noted that a detailed show cause notice was issued with specific allegations to which the contractor submitted a detailed reply.

"After considering the allegations in the show cause notice, considering the reply and also by considering the material available on record the order of blacklisting was passed. We fail to appreciate, how in such a case the blacklisting order can be said to be in breach of principles of natural justice.", the court said.

 "Debarment" is recognised and often used as an effective method for disciplining deviant suppliers/contractors

The court noted that "debarment" is recognised and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission.

"It is for the State or appropriate authority to pass an order of blacklisting/debarment in the facts and circumstances of the case. Therefore, the High Court has erred and has exceeded its jurisdiction in exercise of powers under Article 226 of the Constitution of India by quashing and setting aside the blacklisting order, that too, without adverting to the serious allegations and the act of omission and commission on the part of the contractor which led to a serious incident of collapse of ten meter slab while concrete work of the deck was going on and due to which one person died and eleven others were injured. It was specifically found that the safety arrangements were lacking severely in the construction work zone. It was also found that quality assurance was not emphasised as stipulated in the codes and manuals and as per the Agreement. Therefore, the High Court ought to have considered the seriousness of the incident in which due to omission and commission on the part of the contractor in constructing the flyover one person died and eleven others were injured.", the court said.

Duration of blacklisting cannot be solely per offence

Referring to  Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited  (2014) 14 SCC 731, the court noted that hat "debarment" is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor. The court further noted that, following this decision, the State has formulated a blacklisting policy.  Disapproving the said policy, the bench observed:

"We may observe that we do not approve of the guidelines issued by the State Government by O.M. dated 26.11.2021. Duration of blacklisting cannot be solely per offence. Seriousness of the lapse and the incident and/or gravity of commission and omission on  the part of the contractor which led to the incident should be the relevant considerations. In a given case, it may happen that the commission and omission is very grave and because of the serious lapse and/or negligence, a major incident would have taken place. In such a case, it may be the contractor's first offence, in such a case, the period/duration of the blacklisting/banning can be more than three years. However, as the said guidelines are not under challenge, we rest the matter there and leave it to the State Government to suitably amend and/or modify the said office memorandum. However, what we have observed above can be a guide while determining the period of debarment/blacklisting."

The court observed that, in the instant case, though offence was the first offence committed by the contractor, the incident was serious.

"To debar him permanently can be said to be too harsh a punishment. But considering the subsequent O.M. dated 26.11.2021 reproduced hereinabove (to which as such we do not agree as observed hereinabove), we are of the opinion that if the blacklisting is restricted to five years, it may be in the fitness of things.", the court said while partly allowing the State's appeal. 

Case : State of Odisha vs Panda Infraproject Limited | CA 1083 OF 2022 | 24 Feb 2022

Citation: 2022 LiveLaw (SC) 206

Coram: Justices MR Shah and BV Nagarathna

Counsel: AG Ashok Kumar Parija for appellant-State, Adv Sibo Sankar Misra for respondent