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Judgment
Dr. B.R. Sarangi, J
M/s Ecometrix Consultants Pvt. Ltd., a company registered under the Companies Act, 2013, as petitioner no.1, and the Manager (Finance) of the said company, as petitioner no.2, have filed this writ petition seeking to quash the letter dated 21.10.2022 under Annexure-5, by which the Letter of Award for selection of Survey Agency issued in favour of the petitioner no.1-company, vide letter dated 13.09.2022, has been cancelled/terminated, since petitioner no.1-company failed to fulfill the terms and conditions, as mentioned in sl. nos.3 and 4 of the above Letter of Award along with the conditions stipulated in Clause-13 of the Request for Proposal (RFP), within stipulated date and time, and the petitioner no.1-company has been blacklisted and banned for at least 3 years to be employed anywhere in the authority works with a warning not to submit any proposal, as Survey Agency, with Bubaneswar Development Authority (BDA) in future, otherwise the same would be rejected.
The factual matrix of the case, in a nutshell, is that petitioner no.1, as a consulting company, was established in the year 2015 for providing professional services in GIS, ITES, Water, Environmental and Social Sectors and, as such, petitioner no.1-company has adequate knowledge and experience in providing the same. Therefore, it is empanelled with Odisha Remote Sensing Space Application Centre (ORSAC) and Maharastra Remote Sensing Space Application Centre (MRSAC) along with other Government bodies, such as, Town and Country Planning Authority, Rural Water Supply and Sanitation Organization, Odisha Public Health Engineering Department, Odisha, Bhubaneswar Development Authority, Odisha, etc. and being engaged in various projects of different organizations, the petitioner no.1-company has completed the assignments/ works in time. Apart from the same, many of the works are ongoing in different organizations.
2.1 Opposite party no.1-BDA, which was constituted under the Orissa Development Authorities Act, 1982, and functioning under the control and supervision of the Department of Housing and Urban Development, Govt. of Odisha, issued a Request for Proposal (RFP) on 29.07.2022. In response to the same, the petitioner no.1-company applied for selection of Survey Agency for survey and field verification of land parcels for land demarcation of various plots of land with BDA. Such RFP contained two bid systems, viz., technical and financial. As per the RFP, the date of availability of RFP document was 20.08.2022, the date and time of pre-bid meeting was fixed to 03.08.2022 at 4.00 P.M. in the Conference Room, BDA, Akash Shobha Building, Sachivalaya Marg, Bhubaneswar, the last date and time for receipt of proposals was fixed to 22.08.2022 till 3.00 P.M., place of submission of proposals was before the Secretary, BDA, Akash Shobha Building, Sachivalaya Marg, Bhubaneswar and the date and time for opening of technical proposal was fixed to 24.08.2022 at 4.00 P.M. In adherence to the conditions of the RFP, petitioner no.1-company submitted its bid, which was considered and intimation was sent to the petitioner no.1-company, vide letter dated 13.09.2022, that it was selected as L-1 to undertake survey work as per RFP dated 29.07.2022 and was issued with Letter of Award (LoA) of even date along with format of performance guarantee agreement. Thereafter, the petitioner no.1-company approached the opposite parties for further discussion on 15.09.2022 and the same was done in the office of opposite party no.3 and Planning Member (TP). Clarifications were sought before signing the agreement and accepting the LoA as well as meeting all other requirements under the same, where the petitioner no.1-company was advised to put the same in writing and, as such, the petitioner no.1-company, in response thereto, sent a letter/email on 19.09.2022. Accordingly, on 15.10.2022, opposite party no.3 rejected the request made by the petitioner no.1-company in modification of demarcation point which would affect the payment conditions for being beyond the scope of RFP. Thereafter, opposite party no.3, without any prior notice, whether verbal or written, vide letter dated 21.10.2022, intimated the petitioner no.1-company that the LoA dated 13.09.2022 stands terminated/cancelled since petitioner no.1-company failed to fulfill the terms and conditions within the stipulated date and time as per sl.nos.3 and 4 of the LoA along with the conditions stipulated in Clause-13 of the RFP. In the said letter, it was further indicated that the petitioner no.1-company has been blacklisted and banned for a period of three years from being employed anywhere in the authority (BDA) works with a warning not to submit any proposal as Survey Agency with BDA in future, otherwise the same would be rejected. Hence, this writ petition.
Ms. Mamata Tripathy, learned counsel appearing for the petitioners vehemently contended that the impugned letter of cancellation/termination of LoA on the plea of invoking Clause-13 of the RFP and consequential blacklisting and banning for a period of three years to be employed anywhere in the authority (BDA) works with a warning not to submit any proposal as Survey Agency with BDA in future is arbitrary, unreasonable and contrary to the provisions of law and violates Article 14 of the Constitution of India and also principles of natural justice. It is contended that no show cause notice was issued to the petitioner no.1-company before blacklisting and banning it for a period of three years. It is contended that no contract was executed between the parties, as no agreement was signed by the petitioner no.1-company and till date the petitioner no.1-company has not been awarded the work to be undertaken by it. It is contended that on receipt of the letter dated 21.10.2022, the petitioner no.1-company immediately approached the BDA on 25.10.2022 with a request to accept the LoA dated 13.09.2022 and also undertook to submit the bank guarantee as well as for execution of the agreement for the said work within seven days. In the request for reconsideration and representation dated 26.10.2022, petitioner no.1-company clearly stated that as per sl.nos.3 and 4 of LoA, Clause-13 of the RFP and Clause-2.6 of the RFP are not applicable to it and, therefore, it cannot be subjected to cancellation/termination /blacklisting. In response to the same, on 22.11.2022, the opposite party-authority rejected the request for reconsideration of cancellation/ termination. It is thus contended that such action of the authority in not considering the case of the petitioner no.1-company is an outcome of non-application of mind. Therefore, the petitioners have approached this Court invoking extra-ordinary jurisdiction of this Court to interfere with the same.
To substantiate her contention, learned counsel for the petitioners has relied upon the judgments of the apex Court in the cases of M/s Erusian Equipment and Chemicals Ltd. v. State of West Bengal and Anr., (1975) 1 SCC 70; Mahabir Auto Stores and others v. Indian Oil Corporation Ltd., (1990) 3 SCC 752; Vetinda Pharmaceuticals Limited v. State of Uttar Pradesh and another, (2021) 1 SCC 804:AIR 2020 SC 5753; Gorkha Security Services v. Govt. of NCT of Delhi and others, (2014) 9 SCC 105:AIR 2014 SC 3371.
Mr. S. Swain, learned counsel appearing for the opposite party-BDA, while admitting the fact that pursuant to the RFP dated 29.07.2022 the petitioner no.1-company was considered as L-1 and selected for Survey Agency for survey and field verification of land parcels for land demarcation of various plots of land with BDA, LoA was issued in its favour, contended that since the petitioner no.1-company put condition by making request by way of filing representation dated 26.10.2022, the same was rejected invoking Clause-13 of the RFP. It is further contended that as per Clauses-3 and 4 of the LoA dated 13.09.2022, the petitioner no.1-company has to return the duplicate copy of the LoA duly signed by the authorized signatory on or before 20.09.2022 and also to indicate the date on which it proposed to execute the agreement with BDA. More so, the petitioner no.1-company was also required to deposit the performance security equivalent to Rs.2 lakhs only in the form of bank guarantee in prescribed format attached in Annexure-1 on or before 20.09.2022 as per Clause-2.6 of the RFP document before execution of agreement. But, instead of returning the duplicate copy of the LoA duly signed by the authorized signatory and depositing the performance security by 20.09.2022, petitioner no.1-company issued a letter on 19.09.2022 to opposite party no.3 and started bargaining by raising certain conditions without complying with the requirements as indicated in the LoA. Thereby, the opposite party-authority was constrained to terminate such LoA as per Clause-13 of the RFP and blacklisted the petitioner no.1-company and banned it for three years to be employed anywhere in the authority works with a warning not to submit any proposal as Survey Agency with BDA in future. Thus, it is contended that no illegality or irregularity has been committed by the authority in issuing the impugned letter of cancellation/ termination so as to cause interference by this Court. Consequentially, dismissal of the writ petition is sought for.
This Court heard Ms. Mamata Tripathy, learned counsel appearing for the petitioners and Mr. S. Swain, learned counsel appearing for the opposite parties-BDA in hybrid mode and perused the records. Pleadings having been exchanged between the parties, the matter is being disposed of finally with the consent of learned counsel for the parties at the stage of admission.
Before delving into the issues involved, the relevant provisions of the RFP and LoA are quoted below:-
“Clause-2.3 of the RPF
Letter of Award:
After selection, a Letter of Award (the LOA) shall be issued, in duplicate, by BDA to the selected bidder and the bidder shall, with 7 (seven) days of the receipt of the LOA, sign and return the duplicate copy of the LOA in acknowledgement thereof along with the performance security as per the provisions of clause-2.6 below:
In the event the duplicate copy of the LOA duly signed by the selected survey agency is not received by the stipulated date or the performance security is not submitted as per the provisions of the RFP, specified in LOA, the LOA shall stand cancelled for all purposes by BDA. In that case the next lowest bidder may be considered for the project to negotiate and to match the price quoted by L bidder in the manner specified above. Provided, however, that the Vice-Chairman can consider any request for extension for signing of LOA subject to such condition (s) as specified by BDA.”
Clause-13 of the RFP- Termination:
If, the performance of selected survey agency is not satisfactory/survey agency has failed to safeguard the interest of BDA, BDA may at its sole discretion, terminate the engagement of the survey agency and also shall forfeit the performance security. Further, the survey agency shall be blacklisted and banned for at least 3 years to be employed anywhere in the authority works. BDA, in doing so, shall intimate the firm in written with its termination letter. The decision of BDA in this matter shall be final and binding.”
Clauses-3 and 4 of the LoA:
“3. You are requested to return the duplicate copy of the Letter of Award duly signed by the authorized signatory within seven days from the issuance of this letter as a pre-conditions for execution of agreement. Along with the duplicate copy of the LoA, you shall also indicate the date on which you propose to execute the agreement with BDA for the above mentioned assignment, which shall not be later than 7 days from the issuance of this LoA. A copy of draft agreement shall be shared, in mail, within next seven working days for your perusal.
You are further requested to deposit the performance security equivalent to INR 2,00,000/- (Rupees Two lakhs) only in the form of a Bank Guarantee (BG) in the prescribed format attached in Annexure-1 within 7 days from the issuance of LoA as per clause-2.6 of the RFP document before the execution of the Agreement.”
On perusal of Clause-2.3 of the RFP it would be evident that after selection, a Letter of Award shall have to be issued, in duplicate, by the BDA to the selected bidder and the bidder shall, within seven days of the receipt of the LoA, sign and return the duplicate copy of the LoA with acknowledgement thereof along with the performance security, as per the provision of Clause-2.6. Admittedly, after issuance of LoA, the petitioner no.1-company was to comply with Clause-2.3 mentioned above. But the petitioner no.1-company requested for certain clarification and without answering to the clarification sought by the petitioner company, opposite party-authority invoked Clause-13 and terminated the LoA. As such, Clause-13 of the RFP stipulates that if the performance of selected survey agency is not satisfactory/survey agency has failed to safeguard the interest of BDA, BDA may at its discretion, terminate the engagement of the survey agency and also forfeit the performance security. Further, the survey agency shall be blacklisted and banned for at least three years to be employed anywhere in the authority works. The authority in doing so, shall intimate the firm in writing with its termination letter and, as such, the decision of the BDA shall be final and binding. Thereby, it is the primary responsibility of the opposite party-BDA to show that the performance of the selected survey agency is not satisfactory or the survey agency has failed to safeguard the interest of the BDA. As such, till date no agreement has been executed between the petitioner no.1-company and the opposite parties-BDA and, therefore, question of adjudging the performance of the petitioner no.1-company does not arise or the question of failure of safeguarding interest of the BDA does not arise. More so, the discretion, which has been given to the BDA to terminate the engagement of survey agency and also to forfeit performance security, cannot be exercised, as the petitioner no.1-company never performed the work in question. As a consequence thereof, the action taken by the opposite parties-BDA in blacklisting and banning the petitioner no.1-company for a period of three years to be employed elsewhere in the authority works, is also absolutely misconceived one. As per Clauses-3 and 4 of the LoA, as mentioned above, the petitioner no.1-company was to return the duplicate copy of the LoA signed by the authorized signatory within seven days and to deposit performance security equivalent to Rs.2 lakhs in the form of bank guarantee in the prescribed format attached. On receipt of LoA, since the petitioner no.1-company made a representation for reconsideration raising certain points, question of returning the duplicate copy of the LoA within the time stipulated or depositing of performance security equivalent to INR two lakhs was not warranted. Needless to say, when the petitioner no.1-company had a grievance and it moved the authority by way of filing representation for reconsideration of its case, without considering the same, the action taken by opposite party no.3 is arbitrary, unreasonable and contrary to the provisions of law.
On perusal of records, it appears that, while issuing the letter in Annexure-5 dated 21.10.2022 in cancelling/terminating the LoA issued, vide letter dated 13.09.2022, for selection of survey agency, the opposite party-authority has not issued any notice of show cause nor complied with the principles of natural justice. It is therefore followed that the provisions contained in Clause-13 of the RFP have not been understood by the opposite party-authority and action has been taken whimsically only to put the petitioner no.1-company in harassment. Since the impugned order of cancellation has been passed without issuing any show cause notice and without giving any opportunity of hearing to the petitioner no.1-company, it amounts to violation of the principles of natural justice.
The essential of compliance of natural justice is nothing but a duty to act fairly. Natural justice is an antithesis of arbitrariness. It, therefore, follows that audi alteram partem, which is facet of natural justice is a requirement of Art.14.
The word ‘nature’ literally means the innate tendency or quality of things or objects and the word ‘just’ means upright, fair or proper. The expression ‘natural justice’ would, therefore, mean the innate quality of being fair.
Natural justice, another name of which is common sense of justice, is the name of those principles which constitute the minimum requirement of justice and without adherence to which justice would be a travesty. Natural justice accordingly stands for that fundamental quality of fairness which being adopted, justice must not only be done but also appears to be done.
The soul of natural justice is “fair play in action”.
In HK (An Infant) in re, 1967 1 All ER 226 (DC), Lord Parker, CJ, preferred to describe natural justice as 'a duty to act fairly'.
In Fairmount Investments Ltd. v. Secy. of State for Environment, 1976 2 All ER 865 (HL), Lord Russel of Killowen somewhat picturesquely described natural justice as 'a fair crack of the whip'.
In R. v. Secy. Of State for Home Affairs, ex p. Hosenball, Geoffrey Lane, LJ, 1977 3 All ER 452 (DC & CA), preferred the homely phrase 'common fairness' in defining natural justice.
In Ridge v. Baldwin, (1963) 2 SLL RT 66 at 102, Lord Morris of Borth-y-Gest observed that “it is well established that the essential requirements of natural justice at least include that before someone is condemned he is to have an opportunity of defending himself, and in order that he may do so that he is to be made aware of the charges or allegations or suggestions which he has to meet ... My Lords, here is something which is basic to our system: the importance of upholding it far transcends the significance of any particular case".
In Byrne v. Kinematograph Renters Society Ltd, (1958) All ER 579, while considering the requirements of natural justice, Justice Narman, J said. “........First, I think that the person accused should know the nature of the accusation made; secondly, that he should be given an opportunity to state his case; and thereby, of course, that the tribunal should act in good faith. I do not think that there really is anything more”.
In Russel v. Duke of Norfolk, (1949) 1 All ER 109, Tucker, LJ, observed that one essential is that the person concerned should have a reasonable opportunity of presenting his case. The view of Tucker, LJ, in Russell's case (supra) has been approved by the Supreme Court of India in Rattan Lal Sharma v Managing Committee, (1993) 4 SCC 10 : AIR 1993 SC 2115.
In General Medical Council v. Spackman, (1943) AC 627, Lord Wright pointed out that it should give a full and fair opportunity to every party being heard.
In A.K. Kraipak and others v. Union of India, AIR 1970 SC 150: (1969) 2 SCC 262, is a landmark in the growth of this doctrine. Speaking for the Constitution Bench, Hegde, J. observed thus:
"If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have far reaching effect than a decision in a quasi-judicial enquiry".
In Maneka Gandhi v. Union of India, AIR 1978 SC 597 : (1978) 1 SCC 248, law has done further blooming of this concept. This decision has established beyond doubt that even in an administrative proceeding involving civil consequences doctrine of natural justice must be held to be applicable.
In Swadeshi Cotton Mills v. Union of India, AIR 1981 SC 818, the meaning of 'natural justice' came for consideration before the apex Court and the apex Court observed as follows:-
"The phrase is not capable of a static and precise definition. It cannot be imprisoned in the straight-jacket of a cast-iron formula. Historically, "natural justice" has been used in a way "which implies the existence of moral principles of self evident and urarguable truth". "Natural justice" by Paul Jackson, 2nd Ed., page-1. In course of time, judges nurtured in the traditions of British jurispruduence, often invoked it in conjuction with a reference to "equity and good conscience". Legal experts of earlier generations did not draw any distinction between "natural justice" and "natural law". "Natural justice" was considered as "that part of natural law which relates to the administration of justice."
In Basudeo Tiwary v Sido Kanhu University and others (1998) 8 SCC 194, the apex Court held that natural justice is an antithesis of arbitrariness. It, therefore, follows that audi alteram partem, which is facet of natural justice is a requirement of Art.14.
In Nagarjuna Construction Company Limited v. Government of Andhra Pradesh, (2008) 16 SCC 276, the apex Court held as follows:
“The rule of law demands that the power to determine questions affecting rights of citizens would impose the limitation that the power should be exercised in conformity with the principles of natural justice. Thus, whenever a man's rights are affected by decisions taken under statutory powers, the court would presume the existence of a duty to observe the rules of natural justice. It is important to note in this context the normal rule that whenever it is necessary to ensure against the failure of justice, the principles of natural justice must be read into a provision. Such a course is not permissible where the rule excludes expressly or by necessary intendment, the application of the principles of natural justice, but in that event, the validity of that rule may fall for consideration."
The apex Court in Uma Nath Panday and others v State of U.P. and others, AIR 2009 SC 2375, held that natural justice is the essence of fair adjudication, deeply rooted in tradition and conscience, to be ranked as fundamental. The purpose of following the principles of natural justice is the prevention of miscarriage of justice.
In Mohinder Singh Gill v. The Chief Election Commissioner, AIR1978 SC 851 : (1978) 1 SCC 405, the apex Court held that natural justice is treated as a pervasive facet of secular law where a spiritual touch enlivens legislation, administration and adjudication, to make fairness a creed of life. It has many colours and shades, many forms and shapes and, save where valid law excludes, it applies when people are affected by acts of Authority. It is the bone of healthy government, recognised from earliest times and not a mystic testament of judge-made law. Indeed, from the legendary days of Adam-and of Kautilya's Arthasastra-the rule of law has had this stamp of natural justice which makes it social justice.
In Bhagwan v. Ramchand, AIR 1965 SC 1767: (1965) 3 SCR 218, the apex Court held that the rule of law demands that the power to determine questions affecting rights of citizens would impose the limitation that the power should be exercised in conformity with the principles of natural justice.
In Sukdev Singh v Bhagatram, AIR 1975 SC 1331: (1975)1 SCC 421, the apex Court held that whenever a man's rights are affected by decisions taken under statutory powers, the court would presume the existence of a duty to observe the rules of natural justice.
The order impugned dated 21.10.2022 in Annexure-5 also indicates that the petitioner no.1-company has been blacklisted and banned for a period of three years to be employed anywhere in the authority works. In absence of any performance made by the petitioner no.1-company and without execution of the agreement, the action of the opposite party-authority in blacklisting and banning the petitioner no.1-company for three years to be employed anywhere in the authority works, is arbitrary and unreasonable and cannot be sustained in the eye of law. Consequentially, the warning given to the petitioner no.1-company to submit any proposal as survey agency with BDA in future also cannot be sustained. Clause-2.3 and Clause-13 of the RFP are self explanatory and both the clauses will apply only when performance of the survey agency is not satisfactory. Performance comes into play, once the agreement/contract is signed and that too during the execution thereof. As such, mere seeking of clarification or filing of representation making any grievance, at the stage of negotiation, cannot be construed to be a contract and in absence of any contract, it is not binding on the parties. There is no provision whatever under BDA’s own terms and conditions for blacklisting of the petitioner no.1-company at the stage of floating of tender or any response/expression of interest shown thereto. In absence of consensus ad idem, the opposite parties do not have any power of blacklisting.
In Mahabir Auto Stores (supra), the apex Court held as under:-
“It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Con-stitution. Reliance in this connection may be placed on the observations of this Court in M/s Radha Krishna Agarwal & Ors. v. State of Bihar & Ors., [1977] 3 SCC 457.1t appears to us, at the outset, that in the facts and circumstances of the case, the respondent-company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual par- ties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See M/s Radha Krishna Agarwal v. State of Bihar, (supra) at p. 462, but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the con- tract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitution in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration, it depends upon facts and circumstances of a particular transaction whether heating is necessary and reasons have to be stated. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a Governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. In this connection reference may be made to E.P. Royappa v. State of Tamil Nadu & Anr., [1974] 4 SCC 3; Maneka Gandhi v. Union of India & Anr., [1976] 1 SCC 248; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors., [1981] 1 SCC 722; R.D. Shetry v. International Airport Authority of India & Ors., [1979] 3 SCC 1 and also Dwarkadas Marlaria and sons v. Board of Trustees of the Port of Bombay, [1989] 3 SCC 293. It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case.”
Blacklisting operates as a prejudice to a commercial person not only in present but also puts a taint which could very well go as far as putting a death knell or cause ‘Civil Death’ or to put it in other words black listing is an instrument of coercion as it will invariably take him out of participating in tender processes as most tenders as a pre-qualification criteria debar blacklisted companies from participating in tender processes and impact their business opportunities. Because of the letter in Annexure-5 in blacklisting and banning the petitioner no.1-company for three years, the petitioner no.1-company is facing the same stigma/ problem and is unable to participate in Government tenders/contracts and, thereby, shortage work would mean closure of the company because of the impugned action of the opposite parties. It has been held in many cases that mere breach of contract is not sufficient to merit an order of blacklisting. It cannot be resorted to when there is breach of terms and conditions of contract but has to be much more, i.e., conduct of the party has to be deviant and aberrant. But in the present case, the opposite party-BDA has blacklisted the petitioner no.1-company even before it has signed the LoA, bereft of the fact that there was no execution of agreement or contract between the parties.
Needless to say, the order of blacklisting has to meet the doctrine of proportionality. A doctrine or principle developed by courts to interfere in an administrative discretion when they find that the decisions are irrational, unreasonable or entails abuse/misuse of power. Although, while exercising power under judicial review, the Courts are reluctant to substitute their own opinion, in fit cases where the penalty or punishment is disproportionate, the Courts will step into remedy the same. Blacklisting has the effect of preventing a person to enter into Government contracts, thereby affecting the fundamental rights enshrined under Article 14 of the Constitution, i.e., a blacklisted person/entity is not treated at par with other persons/parties who are participating in the tender process. This has a cascading effect on a person’s fundamental rights guaranteed under Article 19 (1) (g) and Article 21 also.
If the above principles are taken into consideration, the whimsical action taken by the opposite party-BDA in blacklisting and banning the petitioner no.1-company for three years to participate anywhere in the Authority works, cannot be sustained in the eye of law.
Mr. S. Swain, learned counsel appearing for the opposite party-BDA has relied upon the Appendix-XXXIV, the Codal provisions for blacklisting contractors, more particularly clause-(f), which reads as under:-
“A Chief Engineer of a department may blacklist a contractor with the approval of concerned Administrative Department on the following grounds:
(a) xxx xxx xxx
xxx xxx xxx xxx
(f) Submission of false/fabricated/forged documents for consideration of a tender”
On perusal of aforementioned clause, it would be evident that the authority may blacklist a contractor with the approval of concerned administrative department in the event of submission of false/fabricated/forged documents for consideration of a tender. But, in the case at hand, nothing has been placed on record to indicate so. Rather, a whimsical argument was advanced justifying the action of the opposite parties in blacklisting the petitioner no.1-company without any materials. Thereby, such action of the opposite parties is deprecated and the opposite parties are warned not to take such type of action on flimsy ground in future. As such, they have to act very cautiously, while dealing with the matter of contract between the parties, because such action deprives a contractor of earning livelihood.
In M/s Erusian Equipment & Chemicals Ltd (supra), the apex Court highlighted the necessity of giving an opportunity to such a person by serving a show cause notice thereby giving him opportunity to meet the allegations which were in the mind of the authority contemplating blacklisting of such a person. While doing so, in paragraphs-12 and 20, the apex Court held as follows:
“12. Under Article 298 of the Constitution the Executive power of the Union and the State shall extend to the carrying on of any trade and to the acquisition, holding and disposal of property and the making of contracts for any purpose. The State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal, protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of black- listing, has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of black- listing. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality.
xxx xxx xxx
Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.”
In Raghunath Thakur v. State of Bihar, (1989) 1 SCC 229, the apex Court held as under:
“4. Indisputably, no notice had been given to the appellant of the proposal of black-listing the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before black-listing any person. In so far as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the PG NO 869 principles of natural justice. It has to be realised that black-listing any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order. In that view of the matter, the last portion of the order in so far as it directs black-listing of the appellant in respect of future contracts, cannot be sustained in law. In the premises, that portion of the order directing that the appellant be placed in the black-list in respect of future contracts under the Collector is set aside. So far as the cancellation of the bid of the appellant is concerned, that is not affected. This order will, however, not prevent the State Government or the appropriate authorities from taking any future steps for blacklisting the appellant if the Government is so entitled to do so in accordance with law, i.e. giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State Government will be at liberty to pass any order in accordance with law indicating the reasons therefor. We, however, make it quite clear that we are not expressing any opinion on the correctness or otherwise of the allegations made against the appellant. The appeal is thus disposed of.”
In Patel Engineering Ltd. V. Union of India, (2012) 11 SCC 257, the apex Court emphatically reiterated the principle of blacklisting by explaining the same in the following manner:-
“13. The concept of Blacklisting is explained by this Court in M/s. Erusian Equipment & Chemicals Limited v. Union of India and others, (1975) 1 SCC 70, as under:
“20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains.”
The nature of the authority of State to blacklist persons was considered by this Court in the abovementioned case[1] and took note of the constitutional provision (Article 298)[2], which authorises both the Union of India and the States to make contracts for any purpose and to carry on any trade or business. It also authorises the acquisition, holding and disposal of property. This Court also took note of the fact that the right to make a contract includes the right not to make a contract. By definition, the said right is inherent in every person capable of entering into a contract. However, such a right either to enter or not to enter into a contract with any person is subject to a constitutional obligation to obey the command of Article 14. Though nobody has any right to compel State to enter into a contract, everybody has a right to be treated equally when State seeks to establish contractual relationships[3]. The effect of excluding a person from entering into a contractual relationship with State would be to deprive such person to be treated equally with those, who are also engaged in similar activity.
It follows from the above Judgment that the decision of State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into contractual relationship with such persons is called blacklisting. State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that State is to act fairly and rationally without in any way being arbitrary – thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors.”
Similar view has also been taken by the apex Court in Vetinda Pharmaceuticals Limited mentioned supra.
In view of the above mentioned judicial pronouncements, it is made clear that service of notice of show cause is essential. The same having been absent in the present case, the impugned order of blacklisting and banning the petitioner no.1-company for a period of three years to be employed anywhere in the work of the authority, and consequential warning given not to submit any proposal as survey agency with BDA in future cannot be sustained in the eye of law. Accordingly, the letter dated 21.10.2022 issued by the opposite party no.3 under Annexure-5 is liable to be quashed and is hereby quashed. Both parties are directed to proceed from the date of issuance of LoA in favour of the petitioner no.1-company and work out the same in accordance with law.
In the result, the writ petition stands allowed. However, there shall be no order as to costs.
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