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Judgment
M/S Super Industrial Corporation has preferred this petition for issuance of a writ in the nature of certiorari quashing order dated 14.5.2015 appended with the petition as Annexure-1.
Short contention of learned counsel for the petitioner Shri Hari Om Singh, Advocate, is to the effect that the petitioner was registered contractor with department of irrigation and water resources. The petitioner has been blacklisted vide order dated 14.5.2015. The order is stigmatic in nature and adversely affects the civil rights of the petitioner, yet opportunity of hearing has not been given to the petitioner. The order has been passed in violation of principles of natural justice, hence is liable to be quashed.
We have gone through the contents of the impugned order with the assistance of learned counsel for the State Shri Raj Baksh Singh. Indeed the order inter alia states that the petitioner concern has violated terms of agreement. The petitioner appears to have been stigmatized by holding that on account of non-performance the petitioner has been blacklisted.
'STIGMA' in the ordinary parlance would mean 'a mark of disgrace or infamy; a stain or reproach, as on one's reputation'.
It is settled law that in case any stigmatic order is passed, and has adverse civil consequences, opportunity of hearing is required to be given. In support of the view, we refer to judgment rendered by Hon'ble Supreme Court of India in (2014)9 SCC 105, Gorkha Security Services vs. Government (NCT of Delhi) and others, relevant portion whereof is extracted here-below:-
"14. It is in this backdrop, the question which has arisen for our consideration in the present case is as to whether action of blacklisting could be taken without specifically proposing/contemplating such an action in the show-cause notice? To put it otherwise, whether the power of blacklisting contained in Clause 27 of the NIT, was sufficient for the appellant to be on his guards, and to presume that such an action could be taken even though not specifically spelled out in the show-cause notice?
We have heard the learned counsel for the parties appearing on either side on the aforesaid aspects, in detail. Before we proceed to answer the question we may restate and highlight the legal position about which there is neither any dispute, nor can there be as there is no escape from the below stated legal principle.
Necessity of serving show-cause notice as a requisite of the principles of natural justice
It is a common case of the parties that the blacklisting has to be preceded by a show-cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting, many civil and/or evil consequences follow. It is described as "civil death" of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in government tenders which means precluding him from the award of government contracts.
Way back in the year 1975, this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70] , 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. This is clear from the reading of paras 12 and 20 of the said judgment. Necessitating this requirement, the Court observed thus: (SCC pp. 74-75)
"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 blacklisting 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 blacklisting. 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.
* * *
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."
Again, in Raghunath Thakur v. State of Bihar [(1989) 1 SCC 229] the aforesaid principle was reiterated in the following manner: (SCC p. 230, para 4)
"4. Indisputably, no notice had been given to the appellant of the proposal of blacklisting 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 blacklisting any person. Insofar 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 principles of natural justice. It has to be realised that blacklisting 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 insofar as it directs blacklisting 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 blacklist 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 in accordance with law i.e. after 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."
Recently, in Patel Engg. Ltd. v. Union of India [Patel Engg. Ltd. v. Union of India, (2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445] speaking through one of us (Jasti Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner: (SCC pp. 262-63, paras 13-15)
"13. The concept of 'blacklisting' is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70] as under: (SCC p. 75, para 20)
'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 the State to blacklist the persons was considered by this Court in the abovementioned case and took note of the constitutional provision (Article 298), 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 the State to enter into a contract, everybody has a right to be treated equally when the State seeks to establish contractual relationships. The effect of excluding a person from entering into a contractual relationship with the 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 in Erusian Equipment case [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70] that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of the 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 the 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."
Thus, there is no dispute about the requirement of serving show-cause notice. We may also hasten to add that once the show-cause notice is given and opportunity to reply to the show-cause notice is afforded, it is not even necessary to give an oral hearing. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engg. [Patel Engg. Ltd. v. Union of India, (2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445]
The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show-cause notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/breaches complained of are not satisfactorily explained. When it comes to blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action.
The High Court has simply stated that the purpose of show-cause notice is primarily to enable the noticee to meet the grounds on which the action is proposed against him. No doubt, the High Court is justified to this extent. However, it is equally important to mention as to what would be the consequence if the noticee does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show-cause notice should meet the following two requirements viz:
(i) The material/grounds to be stated which according to the department necessitates an action;
(ii) Particular penalty/action which is proposed to be taken. It is this second requirement which the High Court has failed to omit.
We may hasten to add that even if it is not specifically mentioned in the show-cause notice but it can clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement."
(emphasized by us)
In the judgment rendered by Hon'ble Supreme Court of India in Gorkha Security Services (supra), relevant portion whereof has been extracted above, it has been held that blacklisting of a firm/concern results in adverse civil consequences.
It may be described as "civil death" of a person who is foisted with the order of blacklisting because such order of blacklisting debars such person from participating in government tenders, and precludes him from the award of government contracts. Such order is stigmatic in nature.
In such circumstances principles of natural justice are required to be followed by giving opportunity to the person against whom action of blacklisting is contemplated. Such compliance of principles of natural justice has logical rationale behind it.
The rationale behind the above rule has been explained by Hon'ble Supreme Court of India by saying that under Article 298 of the Constitution of India, the Union and the State have the executive power to carry on any trade and enter into a contract for any purpose. It has further been explained that Article 14 of the Constitution of India demands equality before the law and equal protection of the laws.
It has been specifically held that equality of opportunity should apply to matters of public contract. The State has the right to trade. The State has therefore, the duty to observe equality. An ordinary citizen can choose not to deal with any person, however the government cannot choose to exclude persons by discrimination. It has been provided that the order of blacklisting 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 blacklisting. 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 such a person, it has to be supported by legality. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is required to have and record an objective satisfaction for blacklisting of the person.
In view of such background of law, 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.
It has been held by Hon'ble Supreme Court of India that it is an implied principle of the rule of law that any order having adverse civil consequence should be passed only after following the principles of natural justice. Blacklisting any person in respect of business ventures has civil consequence for the future business. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have a right of being heard and making representation against the order.
Hon'ble Supreme Court of India has held that right to make a contract includes the right not to make 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. It has been held that though nobody has any right to compel the State to enter into a contract, however, everybody has a right to be treated equally when the State seeks to establish contractual relationships.
The effect of excluding a person from entering into a contractual relationship with the State would be to deprive such person to be treated equally with those who are also engaged in similar activity.
It has further been held by Hon'ble Supreme Court of India in Gorkha Security Services case (supra) that the State can decline to enter into contractual relationship with a person or a class of persons for legitimate purpose. The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or 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 the State is to act fairly and rationally without in any way being arbitrary.
It has been held that there is no dispute about requirement of serving show cause notice, however, once show cause notice is given and opportunity to reply to the show cause notice is afforded it is not even necessary to give an oral hearing. The fundamental purpose behind the serving of show cause notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same.
The nature of action which is proposed to be taken for such a breach would also be required to be conveyed so that the noticee is able to point out that the proposed action is not warranted in the given case, even if the defaults/breaches complained of are not satisfactorily explained. When it comes to blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. It has been explained in the judgment that in order to fulfill the requirement of principles of natural justice, a show cause notice must meet two requirements viz.- the material grounds which according to department necessitates the action; and particular penalty/action which is proposed to be awarded.
In the considered opinion of the court the language of the impugned order (Annexure-1) makes it evident that it is stigmatic in nature, and because the petitioner has been blacklisted it would adversely affect the civil rights of the petitioner. In such circumstances, we find that the respondents have not passed the order after compliance of principles of natural justice. The action of the respondents therefore is illegal.
In view of the above impugned order placed on record as Annexure-1 dated 14.5.2015 is hereby quashed, however with liberty to the respondents to pass any such order, in accordance with law as laid down in above noted judgment, after giving an opportunity of hearing to the petitioner.
The petition is accordingly allowed.