Jharkhand High Court
Lava International Limited vs The State Of Jharkhand on 6 May, 2022
Author: Rajesh Shankar
Bench: Rajesh Shankar
1
IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P.(C) No.5249 of 2021
With
I.A. No.7477 of 2021
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Lava International Limited, Noida, Uttar Pradesh. .......... Petitioner.
-Versus-
1. The State of Jharkhand
2. The Director, Social Welfare, Directorate Social Welfare, Engineer's Hostel, Dhurwa, Ranchi.
3. The Secretary, Department of Women, Child Development and Social Security, Government of Jharkhand, Engineer's Hostel, Dhurwa, Ranchi.
.......... Respondents.
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CORAM : HON'BLE MR. JUSTICE RAJESH SHANKAR
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For the Petitioner : Mr. Navneeti Prasad Singh, Sr. Advocate
Mr. Nitin Kumar Pasari, Advocate
For the State : Mr. Rajiv Ranjan, A.G.
Mr. A. K. Yadav, G.A.I
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Order No.07 Date: 06.05.2022
1. This case is taken up through video conferencing.
2. The present writ petition has been filed for quashing the order as contained in letter no.03/ISSNIP/2019-2020/1860/Sa.Ka. dated 15.12.2021 passed by the Director, Social Welfare, Department of Women, Child Development and Social Security (Social Welfare Directorate), Government of Jharkhand, Ranchi- respondent no.2 whereby the petitioner has been blacklisted for a period of one year.
3. The factual background of the case, as stated in the writ petition, is that on 03.03.2020 the respondent no.2 floated a tender on Government e-marketplace (GeM), an Online portal to facilitate public procurement of goods and services required by government departments/organizations/public sector undertakings, under Bid no. GEM/2020/B/569317 for procurement of 29134 smartphones. The petitioner as well as five other companies participated in the said tender and finally the petitioner was declared L1 bidder to supply smartphones @ Rs.6,700/- (inclusive of GST) per unit; total cost of Rs.19.51 crores (approx.). The said tender was, however, subsequently cancelled. The respondent no.2 vide letter dated 20.08.2020 forwarded a complaint to the petitioner filed by an unknown person with respect to the documents submitted by it in the aforesaid tender. On receipt of the said letter, the petitioner submitted its reply on 22.08.2020 giving point wise response as sought by the 2 said respondent. After lapse of more than one year i.e. on 23.08.2021, the respondents raised an online incident report on the GeM portal, alleging that the seller had submitted false declarations regarding certifications and availability of Toll Free number due to which they had to cancel the bid and the said procurement was delayed. Thereafter, the respondents escalated the incident on GeM portal on 20.09.2021. The administrator of GeM asked the petitioner to provide its comment on the said issue, which was duly provided by the petitioner on 20.09.2021, 11.10.2021 and 14.10.2021. On getting satisfied with the replies submitted by the petitioner, the complaint raised by the respondents was closed by the GeM portal without taking any action or making any adverse remark against it. Despite the said fact, the respondent no.2 passed the impugned order on 15.12.2021, blacklisting the petitioner for a period of one year. The petitioner immediately made objection to the said order vide letter dated 16.12.2021, but of no avail. Hence, the present writ petition.
4. Mr. Navneeti Prasad Singh, learned Senior Counsel, appearing on behalf of the petitioner submits that the impugned order has been passed in gross violation of the principles of natural justice, as neither any show cause notice was served upon it nor opportunity of hearing was provided to it before passing the impugned order. Moreover, the same is also in the teeth of several judgments of the Hon'ble Supreme Court as well as this Court and on this score alone, the impugned order is liable to be set aside. It has wrongly been observed in the impugned order that the petitioner did not give any comment or reply on the GeM portal, rather the petitioner had appropriately replied the queries raised on GeM portal subsequent to which the complaint was closed finding no fault on the part of the petitioner. It is also submitted that the respondent no.2 has neither discussed nor has referred the content of the reply to the queries filed by the petitioner on 22.08.2020 over a year prior to issuance of the impugned order. The allegations regarding false declaration and providing wrong toll free number as stated in the impugned order are ex-facie perverse and unsustainable. The model referred in the OEM Declarations, Technical Compliance and BIS certificates submitted along with the bid are same and not different. The petitioner offered Xolo Brand Model Name LN9910- 2GB, which is also called as Era4s_2GB (marketing name) along with the said certificates, declaring the same model number. The petitioner also 3 submitted its declaration that the name of same model is LN9910- 2GB and Marketing name is Era4s_2GB. All the documents evidencing the above were also submitted by the petitioner again with its reply dated 22.08.2020 as well as the reply submitted on the GeM portal. The toll free number given by the petitioner is owned and operated by it, which was duly clarified along with the records of the telephone service provider, which makes the same apparent. It is well settled that the blacklisting has the effect of preventing a person/bidder from the privilege and advantage of entering into lawful relationship with the government/its instrumentalities for the purpose of gains. The order of blacklisting is to be tested on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. It is further submitted that error of jurisdiction is also a ground to question the order of blacklisting. The impugned order ex-facie appears to have been passed by the respondent no.2 in collusion with some competitors of the petitioner with the sole view to cause wrongful loss and damage to the petitioner and to prevent it from participating in future tenders.
5. Mr. Rajiv Ranjan, learned Advocate General, appearing on behalf of the respondents submits that the said tender was floated for "Poshan Abhiyan", a scheme floated by the Government of Jharkhand, which tracks and facilitates the nutritional requirement of children under six years of age as well as for pregnant and lactating mothers. These smartphones were meant to be distributed amongst the workers of Anganwadi to ensure real time monitoring of various services offered under "Poshan Abhiyan" and "Anganwadi Services Scheme". It is further submitted that a complaint was received by the department, in which various irregularities committed by the petitioner in submitting the bid documents were pointed out. It was mentioned in the said complaint that the model name of the smartphone offered by the petitioner under the said scheme was different from the name of same model supplied to different departments and there was mismatch between the model numbers in the mandatory certification submitted by it with the tender document. The condition of having a dedicated/toll free number for service report, as mentioned in the bid, was also not complied. On receiving the complaint, the respondent no.2 vide letter dated 20.8.2020 asked the petitioner submit its reply. Pursuant to the said letter, the petitioner submitted its reply vide letter 4 dated 22.08.2020, which was subsequently placed before the Departmental Purchase Committee. The said committee considered the reply of the petitioner and found that the documents submitted by it with the bid, which were essential to determine the eligibility of its product were having different model number as compared to the model number quoted by it in the tender document. The purchase committee further found that the toll free number mentioned by the petitioner in its declaration given in the bid document was not a "Toll Free Number". Hence, the petitioner had submitted a false declaration. Finally, the purchase committee recommended for scrapping the tender, which led to delay in procurement of smartphones, causing huge loss to the public exchequer. The respondents also raised issue regarding mis-declaration/false declaration with respect to availability of required certifications on GeM portal, however, till 20.09.2021 no response was received from the petitioner's side on the said complaint made by unknown person and thus the matter was escalated to the GeM administrator. Finally, keeping in view the delay caused due to submission of false declaration by the petitioner, resulting into adverse effect on public procurement, the respondent no.2 after considering the petitioner's reply dated 22.08.2020 has passed the impugned order dated 15.12.2021, blacklisting it for a period of one year. It is further submitted that GeM is merely a platform for facilitating public procurement and even if no action is taken by GeM against a stakeholder, the same does not bar legal or contractual remedy, which a buyer may have against the supplier in view of Clause 24 of general terms and conditions (GTC) of the bid document.
6. In the case of Bharat Coking Coal Limited & Others Vs. AMR Dev Prabha & Others, reported in (2020) 16 SCC 759, as relied upon by the learned Advocate General, the Hon'ble Supreme Court has held that writs are impermissible when the allegation is solely with regard to violation of a contractual right or duty. Hence, the persons seeking relief under writ jurisdiction must also actively satisfy the Court that the right sought comes in the purview of public law and not merely contractual. In doing so, a balance is to be maintained between the need for commercial freedom and the very real possibility of collusion, illegality and squandering of public resources.
7. Learned Advocate General further puts reliance on a judgment of the Hon'ble Supreme Court rendered in the case of State of Kerala and 5 Another Vs. RDS Project Limited and Others, reported in (2020) 9 SCC 108, wherein the judgment of the High Court was set aside, holding that the High Court, instead of applying the well- established parameters of judicial review and ascertaining whether the decision of the State Government would violate Article 14, went into the matter itself and stated that it was better to have a load test conducted to avoid any further controversy in the matter. It was further held that the Government could not be said to have behaved arbitrarily when it accepted the opinion of the Expert Committee which was a High Level Committee of five experts.
8. Learned Advocate General further puts reliance on a judgment of the Hon'ble Supreme Court rendered in the case of Silppi Constructions Contractors Vs. Union of India and Another, reported in (2020) 16 SCC 489, wherein it has been held that rejection of tender is purely an administrative decision, which is in the realm of contract. Thus, while rejecting a tender, the tender inviting authority is not required to give reasons even if it be a State within the meaning of Article 12 of the Constitution as the said decision is neither judicial nor quasi-judicial.
9. Learned Advocate General also submits that the petitioner had assured the department that it had a functional toll free number "18605005001" for the beneficiaries of the said tender. However when the respondent no.2 sought clarification from the petitioner with regard to the fact that the telephone number 18605005001 was not a toll free number, it changed the stand and admitted vide letter dated 22.08.2020 that it had not provided a toll free number, rather had provided a dedicated number of service call for any complaint. The petitioner claims in the present writ petition that it was having toll free number for the beneficiaries of the bid which was 18605005001 and in support of the said claim it has annexed tariff details/bill plan details of Airtel pertaining to fixed line number of 18001036844 which is not the number submitted with the tender document. The petitioner has, in fact, misled this Court by making false averments and, thus, has not approach this Court with clean hands.
10. Learned Advocate General further puts reliance on a judgment of the Hon'ble Supreme Court rendered in the case of Arunima Baruah Vs. Union of India & Others reported in (2007) 6 SCC 120, wherein it has been held as under:-
6"14. In Halsbury's Laws of England, 4th Edn., Vol. 16, pp. 874-76, the law is stated in the following terms:
"1303. He who seeks equity must do equity.--In granting relief peculiar to its own jurisdiction a court of equity acts upon the rule that he who seeks equity must do equity. By this it is not meant that the court can impose arbitrary conditions upon a plaintiff simply because he stands in that position on the record. The rule means that a man who comes to seek the aid of a court of equity to enforce a claim must be prepared to submit in such proceedings to any directions which the known principles of a court of equity may make it proper to give; he must do justice as to the matters in respect of which the assistance of equity is asked. In a court of law it is otherwise: when the plaintiff is found to be entitled to judgment, the law must take its course; no terms can be imposed.
*** *** *** *** *** 1305. He who comes into equity must come with clean hands.--A court of equity refuses relief to a plaintiff whose conduct in regard to the subject-matter of the litigation has been improper. This was formerly expressed by the maxim 'he who has committed iniquity shall not have equity', and relief was refused where a transaction was based on the plaintiff's fraud or misrepresentation, or where the plaintiff sought to enforce a security improperly obtained, or where he claimed a remedy for a breach of trust which he had himself procured and whereby he had obtained money. Later it was said that the plaintiff in equity must come with perfect propriety of conduct, or with clean hands. In application of the principle a person will not be allowed to assert his title to property which he has dealt with so as to defeat his creditors or evade tax, for he may not maintain an action by setting up his own fraudulent design.
The maxim does not, however, mean that equity strikes at depravity in a general way; the cleanliness required is to be judged in relation to the relief sought, and the conduct complained of must have an immediate and necessary relation to the equity sued for; it must be depravity in a legal as well as in a moral sense. Thus, fraud on the part of a minor deprives him of his right to equitable relief notwithstanding his disability. Where the transaction is itself unlawful it is not necessary to have recourse to this principle. In equity, just as at law, no suit lies in general in respect of an illegal transaction, but this is on the ground of its illegality, not by reason of the plaintiff's demerits."
(See also Snell's Equity, 13th Edn., pp. 30-32 and Jai Narain Parasrampuria v. Pushpa Devi Saraf [(2006) 7 SCC 756] ."
11. Countering the argument of learned Advocate General, learned senior counsel for the petitioner submits that the respondents have admitted in the counter affidavit that the only letter issued to the petitioner prior to passing the impugned order was the letter dated 20.08.2020 and admittedly no personal hearing was given to it. Moreover, the petitioner was never informed that an action of blacklisting would be taken against it. Even the said letter was issued to the petitioner about one and half years prior to passing of the impugned order without any such details of the reasons mentioned therein.
12. Heard the learned counsel for the parties and perused the materials available on record. The petitioner is aggrieved with the impugned order dated 15.12.2021 blacklisting it for a period of one year.
13. Thrust of the argument advanced by learned senior counsel for the petitioner is that the impugned order has been passed in violation of the principles of natural justice, as neither any show cause notice was 7 served upon the petitioner nor an opportunity of personal hearing was given to it for the action of blacklisting, which is in the teeth of the judgments of the Hon'ble Supreme Court as well as of this Court.
14. To appreciate the rival contentions of learned counsel for the parties, it would be appropriate to refer the judgments relied upon by both the sides in support of their arguments.
15. In the case of UMC Technologies Private Limited Vs. Food Corporation of India & Another reported in (2021)2 SCC 551, the Hon'ble Supreme Court has held as under:-
"13. At the outset, it must be noted that it is 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 basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously. An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent. This Court in [Nasir Ahmad v. Custodian General, Evacuee Property, (1980) 3 SCC 1] has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the noticee to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard.
14. Specifically, in the context of blacklisting of a person or an entity by the State or a State Corporation, the requirement of a valid, particularised and unambiguous show-cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatisation that accrues to the person/entity being blacklisted. Here, it may be gainful to describe the concept of blacklisting and the graveness of the consequences occasioned by it. Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. This privilege arises because it is the State who is the counterparty in government contracts and as such, every eligible person is to be afforded an equal opportunity to participate in such contracts, without arbitrariness and discrimination. Not only does blacklisting take away this privilege, it also tarnishes the blacklisted person's reputation and brings the person's character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person."
16. In the case of Vetindia Pharmaceuticals Ltd. Vs. State of Uttar Pradesh & Another, reported in (2021)1 SCC 804, the Hon'ble Supreme Court has held as under:-
"8. There is no dispute that the injection was not supplied to the respondents by the appellant. Yet the show-cause notice dated 21-10- 2008 referred to further action in terms of the tender for supplying misbranded medicine to the appellant. Furthermore, the show-cause notice did not state that action by blacklisting was to be taken, or was under contemplation. It only mentioned appropriate action in accordance with the rules of the tender. The fact that the terms of the tender may have provided for blacklisting is irrelevant in the facts of the case. In the absence of any supply by the appellant, the order of blacklisting dated 8-9-2009 invoking Clauses 8.12 and 8.23 of the tender is a fundamental flaw, vitiating the impugned order on the face of it reflecting non-application of mind to the issues involved. Even after the appellant brought this fact to the attention of the respondents, they refused to pay any heed to it. Further, it specifies no duration for the same.8
11. If the respondents had expressed their mind in the show-cause notice to blacklist, the appellant could have filed an appropriate response to the same. The insistence of the respondents to support the impugned order [Vetindia Pharmaceuticals Ltd. v. State of U.P., 2019 SCC OnLine All 6734] by reference to the terms of the tender cannot cure the illegality in the absence of the appellant being a successful tenderer and supplier. We therefore hold that the order of blacklisting dated 8-9-2009 stands vitiated from the very inception on more than one ground and merits interference."
17. In the case of Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Others, reported in (2014)14 SCC 731, the Hon'ble Supreme Court has held as under:-
"17. That apart, the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because "blacklisting" simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential precondition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ court.
18. The legal position on the subject is settled by a long line of decisions rendered by this Court starting with Erusian Equipment & Chemicals Ltd. v. State of W.B. [(1975) 1 SCC 70] where this Court declared that blacklisting has the effect of preventing a person from entering into 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. This Court observed: (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 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."
Subsequent decisions of this Court in Southern Painters v. Fertilizers & Chemicals Travancore Ltd. [1994 Supp (2) SCC 699]; Patel Engg. Ltd. v. Union of India [(2012) 11 SCC 257]; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. [(2006) 11 SCC 548]; Joseph Vilangandan v. Executive Engineer (PWD) [(1978) 3 SCC 36] among others have followed the ratio of that decision and applied the principle of audi alteram partem to the process that may eventually culminate in the blacklisting of a contractor.
19. Even the second facet of the scrutiny which the blacklisting order must suffer is no longer res integra. The decisions of this Court in Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457]; E.P. Royappa v. State of T.N. [(1974) 4 SCC 3]; Maneka Gandhi v. Union of India [(1978) 1 SCC 248] ; Ajay Hasia v. Khalid Mujib Sehravardi [(1981) 1 SCC 722] ; Ramana Dayaram Shetty v. International Airport Authority of India [(1979) 3 SCC 489] and Dwarkadas Marfatia and Sons v. Port of Bombay [(1989) 3 SCC 293] have ruled against arbitrariness and discrimination in every 9 matter that is subject to judicial review before a writ court exercising powers under Article 226 or Article 32 of the Constitution.
20. It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law. We do not consider it necessary to burden this judgment by a copious reference to the decisions on the subject. A reference to the following passage from the decision of this Court in Mahabir Auto Stores v. Indian Oil Corpn. [(1990) 3 SCC 752] should, in our view, suffice: (SCC pp. 760- 61, para 12) "12. 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 Constitution. Reliance in this connection may be placed on the observations of this Court in Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457 ] . ... 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. ... 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."
18. In the case of Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and Another, reported in (1975)1 SCC 70, the Hon'ble Supreme Court has held thus:-
"17. The Government is a Government of laws and not of men. It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods. This privilege arises because it is the Government which is trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. Hohfeld treats privileges as a form of liberty as opposed to a duty. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with any one but if it does so, it must do so fairly without discrimination and without unfair procedure. Reputation is a part of a person's character and personality. Blacklisting tarnishes one's reputation.
18. Exclusion of a member of the public from dealing with a State in sales transactions has the effect of preventing him from purchasing and doing a lawful trade in the goods in discriminating against him in 10 favour of other people. The State can impose reasonable conditions regarding rejection and acceptance of bids or qualifications of bidders. Just as exclusion of the lowest tender will be arbitrary, similarly exclusion of a person who offers the highest price from participating at a public auction would also have the same aspect of arbitrariness.
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 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."
19. In the case of Gorkha Security Services Vs. Government (NCT of Delhi) & Others reported in (2014)9 SCC 105, the Hon'ble Supreme Court has held as under:-
"16. 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.
22. 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."
20. Learned senior counsel for the petitioner has also put reliance on the judgment of this Court rendered in the case of Ankush Agrawal Vs. Food Corporation of India & Others [W.P.(C) No. 2254 of 2018], wherein after having gone through the judgments of the Hon'ble Supreme Court, the law of blacklisting has been summarized in the following manner:-
"24. In the aforesaid judgments, the Hon'ble Supreme Court held that when a contract is entered between two private parties, in case of any breach of contract by one party, the other party has every right to blacklist the defaulter and such right is unqualified. However, in a situation where an order of blacklisting has been passed by the State or its instrumentalities, such order is within the realm of power of judicial review of the Writ Court and the same has to be tested in the touchstone of the principle of natural justice, doctrine of proportionality, reasonableness and fairness. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. Blacklisting has the effect of preventing a 11 person from the privilege and advantage of entering into lawful relationship with the government/government agencies for the purposes of gains. Thus, prior to taking such a harsh decision, the person concerned should be given an opportunity to represent his case before he is put on the blacklist. The show cause must not be a mere formality, rather the same should specifically mention the grounds which necessitates the action and also the proposed action by the department so that the person aggrieved may explain the circumstances properly.
25. On perusal of the impugned order dated 26.04.2018, it appears that the order of termination of contract coupled with the debarment of the petitioner has been passed without describing any cogent or strong reason for the same. The order cancelling the awarded work is one aspect while the order of blacklisting is another. The order of termination of contract is passed merely for violation of any mandatory terms and conditions of the contract, however, the order of blacklisting debars any person from dealing with the government instrumentality within the time frame mentioned in the order. Thus, before passing the order of blacklisting, it is a sine-qua-non to hear the alleged delinquent to make sure so as to satisfy as to whether the default is intentional or has been caused under the situation beyond one's control. In the present case, the respondent-FCI has not called upon the petitioner to explain the circumstances under which the delay was caused before passing the order of debarment. The impugned order has been passed merely on the ground that in case of default, the respondent-FCI has the discretion to pass any such order. It is a settled position of law that the State or its instrumentality while dealing with any private individual has to exercise the said discretion in a fair and equitable manner.
26. For the aforesaid reason, I am of the view that the decision making process of the respondent-FCI in blacklisting the petitioner is vitiated as the same has been passed in violation of the principles of natural justice i.e., without affording any opportunity to the petitioner to explain the reasons of alleged default."
21. Law laid down in the aforesaid cases is summarized as under:-
"(i) The power to blacklist is inherent in the party allotting the contract which is unqualified. There is no need for any such power being specifically conferred by the statute or reserved by contractor because the blacklisting is merely a business decision not to enter into contractual relationship with the party committing the breach.
However, such decision is open to scrutiny on the touchstone of fairness, relevance, natural justice, non-discrimination, equality, reasonableness and proportionality.
(ii) A person has no right to enter into a contract but is entitled to equal treatment. The Government which is trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions.
(iii) Blacklisting has long-lasting civil consequences for the future business prospects of the blacklisted person. It also tarnishes the blacklisted person's reputation and brings the person's character into question. In the matter of blacklisting a valid, particularised and unambiguous show-cause notice should be served stating the grounds on which the action is proposed to be taken as well as the proposed action so as to enable the notice to answer the case.
(iv) In order to fulfil the requirement of principle of natural justice, a show cause notice should meet two requirements i.e. the materials/grounds to be stated which according to the department necessitates an action and particular penalty which is proposed to be taken."
22. This Court is, however, not entering into the details of the allegations and counter allegations made by both the parties against each other and is confining itself to see as to whether the process adopted while passing the impugned order of blacklisting satisfies the mandatory 12 legal requirement to be followed by the State authorities as has been held in the aforesaid judgment(s).
23. Reverting back to the present case. Though the respondents in order to justify the impugned order have pointed out certain infirmities in the bid documents submitted by the petitioner alleging that due to the false declaration/misrepresentation of the petitioner, the respondents were forced to cancel the tender which caused huge loss to the public exchequer, however, they have failed to satisfy this Court by bringing on record sufficient evidence on the aspect that a specific show cause notice for blacklisting the petitioner for a period of one year was served to it and sufficient opportunity was given to put forth its defence. Moreover, it is found from the record that the online incident report raised by the respondents on the GeM portal was subsequently closed without any action or adverse remark against the petitioner after receiving its comment on 20.09.2021, 11.10.2021 and 14.10.2021. That apart, a wrong fact has been recorded in the impugned order to the effect that no reply was received from the petitioner's side till 20.09.2021, rather it appears to this court that the reply was duly filed by the petitioner on the GeM portal on 20.09.2021.
24. Learned Advocate General has assiduously contended before this Court that if the facts of the case are undisputed and admitted as also from the facts it is found that only one conclusion in the administrative action is possible, there is no need of serving specific show cause notice and on mere ground of non-serving of the same, the order of blacklisting cannot be said to be bad in law.
25. In support of the aforesaid contention learned Advocate General has put reliance on a judgment of the Hon'ble Supreme Court rendered in the case of State of U.P Vs. Sudhir Kumar Singh and Others, reported in 2020 SCC OnLine SC 847, wherein it has been held as under:-
"39. An analysis of the aforesaid judgments thus reveals:
(1) Natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more, lead to the conclusion that prejudice is thereby caused.
(2) Where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest, but also in public interest.
(3) No prejudice is caused to the person complaining of the breach of natural justice where such person does not dispute the case against him or it. This can happen by reason of estoppel, acquiescence, waiver and by way of non-challenge or non-denial or admission of facts, in 13 cases in which the Court finds on facts that no real prejudice can therefore be said to have been caused to the person complaining of the breach of natural justice.
(4) In cases where facts can be stated to be admitted or indisputable, and only one conclusion is possible, the Court does not pass futile orders of setting aside or remand when there is, in fact, no prejudice caused. This conclusion must be drawn by the Court on an appraisal of the facts of a case, and not by the authority who denies natural justice to a person.
(5) The "prejudice" exception must be more than a mere apprehension or even a reasonable suspicion of a litigant. It should exist as a matter of fact, or be based upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice."
26. Learned Advocate General has put further reliance on a judgment of this Court rendered in the case of Prabhat Kumar Singh Vs. State of Jharkhand & Others [W.P.(C) No. 336 of 2020], wherein it has been held as under:-
"10. The principles of natural justice cannot be applied in a straitjacket formula. There is no legal duty to provide an opportunity of hearing, where it would not change the ultimate conclusion to be reached by the decision-maker. A breach of procedure cannot give rise to a remedy in courts unless behind it, there is something of substance which has been lost by such failure. The Court has to determine as to whether the observance of the principles of natural justice was necessary for a just decision in the facts of a particular case. There may be cases where on admitted and undisputed facts, only one conclusion is possible and in such an eventuality, the application of the principles of natural justice would be a futile exercise and an empty formality."
27. It has further been argued by the learned Advocate General that in the case of Kulja Industries Ltd. (Supra.), it has been held that the power of blacklisting is inherent in the party allotting the contract and there is no need for any such specific power to be conferred by statute because 'blacklisting' simply signifies a business decision whereby the party affected by the breach decides not to enter into any contractual relationship with the party committing such breach.
28. To counter the said argument of the learned Advocate General, learned senior counsel for the petitioner has put reliance on a judgment of the Hon'ble Supreme Court rendered in the case of S.L. Kapoor Vs. Jagmohan & Others, reported in (1980)4 SCC 379, wherein it has been held as under:-
"17. Linked with this question is the question whether the failure to observe natural justice does at all matter if the observance of natural justice would have made no difference, the admitted or indisputable facts speaking for themselves. Where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the court may not issue its writ to compel the observance of natural justice, not because it approves the non- observance of natural justice but because courts do not issue futile writs. But it will be a pernicious principle to apply in other situations where conclusions are controversial, however, slightly, and penalties are discretionary."14
29. In view of the aforesaid judgment, it may thus be construed that the principles of natural justice cannot be applied in a straitjacket formula. Where on the admitted or indisputable facts, only one conclusion is possible and no prejudice is caused as also only one penalty is permissible under law, then a writ may not be issued by the Court to compel the observance of the principles of natural justice. However, in other situations where conclusions are even slightly controversial and penalties are discretionary, then the authority is bound to observe the principles of natural justice before passing the order of punishment.
30. It appears from the facts of the present case and particularly from the show cause notice dated 20.08.2020 served upon the petitioner that the respondents had no intention to pass the order of blacklisting against the petitioner as there was no specific show cause notice on the said action. Moreover, on getting response from the petitioner's side on GeM portal, the complaint/incident raised by the respondents on the said portal was closed without making any adverse remarks. However, subsequently, the order of blacklisting was passed against the petitioner. In view of ratio laid down in the judgments cited by the learned senior counsel for the petitioner, the order of blacklisting has severe civil as well as stigmatic consequence and hence, undoubtedly the petitioner has suffered serious prejudice due to passing of the impugned order. The Hon'ble Supreme Court in the case of Gorkha Security Services (Supra.) has held that had the action of blacklisting been specifically proposed in the show cause notice, the appellant could have mentioned as to why such extreme penalty would not be justified. Thus it is not at all acceptable that non-mentioning of the proposed punishment in the show cause has not caused prejudice to the appellant. It has further been held that the extreme nature of such a harsh punishment like blacklisting with severe consequences would itself amount to causing prejudice to the affected party.
31. The respondents have failed to show before this Court that for the alleged default committed by the petitioner, only one order i.e. the order of blacklisting for one year could have been passed. Moreover, Clause-4(xiii)(o) and (p) of the General Terms and Conditions on GeM provides for the actions to be taken against the bidder for irregularities committed by it.
32. For better appreciation of the case, Clause-4(xiii)(o) and (p) of the General Terms and Conditions on GeM are quoted herein below:-
15"(o) EMD submitted by the bidder shall be forfeited, if the bidder:
i. Withdraws or modify or impairs or derogates from the bid in any respect within the period of validity of its bid, or ii. if it comes to notice that the information/documents furnished in its bid is false, misleading or forged, or iii. Falls to furnish requisite performance security/PBG within stipulated time required as per e-bid/RA conditions.
(p) Notwithstanding above, GeM SPV/GeM Admin also reserve the right to debar such seller from GeM portal. Such debarment shall be for minimum 3 months initially on first such offence and on repeat offence, the debarment period can be increased suitably by GeM SPV/GeM Admin. By submitting a bid of GeM, the Bidder explicitly undertakes to abide by the above clause."
33. Thus, for the alleged default of the petitioner, there was a provision for forfeiture of EMD. Notwithstanding, the said action of forfeiture of EMD, an additional action of debarment, could have been taken against the petitioner. In the present case, the GeM had already closed the matter after receiving the reply of the petitioner. Thus, the respondents were required to serve specific show cause notice to the petitioner before passing the order of blacklisting. Hence, the judgments cited by the learned Advocate General will not justify the impugned action of the respondents.
34. The learned Advocate General has finally submitted that the matter may be remitted to the respondent no.2 with a liberty to issue fresh show cause notice to the petitioner specifying the proposed action of blacklisting so as to pass a fresh order, giving opportunity of hearing to the petitioner.
35. On this issue, learned Advocate General has put reliance on the judgment of the Hon'ble Supreme Court rendered in the case of State of Jharkhand & Others Vs. Sponge Iron Ltd., reported in 2021 SCC Online SC 997, wherein the view taken by the High Court that the show cause notice was infirm and was not in conformity with the provisions of Jharkhand Value Added Tax Act, 2005 and Rules framed thereunder, was not interfered and was thus confirmed by the Hon'ble Apex Court. The order of the High Court was, however, modified by observing that the High Court ought to have kept the option with the competent authority to issue a fresh show cause notice in conformity with the provisions of the Act and Rules concerning the subject matter of notice under Rule 58 of Jharkhand Value Added Tax Rules, 2006 for violation of Section 70(5)(b) of the Jharkhand Value Added Tax Act, 2005.
1636. Learned Advocate General has submitted that even in the case of Kulja Industries Limited (Supra.), the Hon'ble Supreme Court had remanded the matter for fresh consideration on the point of blacklisting as well as to rectify the irregularity.
37. Learned senior counsel for the petitioner has vehemently opposed the said argument of the learned Advocate General and has submitted that in the cases relied upon by the learned Advocate General, the authority had the intention to take action of blacklisting as was already contemplated. However in the case in hand, there was no intention to blacklist the petitioner in absence of any specific show cause notice issued to it for the same. It is well settled that justice should not only be done but it should be seen to be done.
38. Learned senior counsel for the petitioner has further replied upon the judgment of the Hon'ble Supreme Court rendered in the case of K.L Shephard and Others Vs. Union of India and Others, reported in (1987)4 SCC 431, wherein it has been held as under:-
"16. We may now point out that the learned Single Judge of the Kerala High Court had proposed a post-amalgamation hearing to meet the situation but that has been vacated by the Division Bench. For the reasons we have indicated, there is no justification to think of a post- decisional hearing. On the other hand the normal rule should apply. It was also contended on behalf of the respondents that the excluded employees could now represent and their cases could be examined. We do not think that would meet the ends of justice. They have already been thrown out of employment and having been deprived of livelihood they must be facing serious difficulties. There is no justification to throw them out of employment and then give them an opportunity of representation when the requirement is that they should have the opportunity referred to above as a condition precedent to action. It is common experience that once a decision has been taken, there is a tendency to uphold it and a representation may not really yield any fruitful purpose."
39. This Court finds substance in the argument of learned senior counsel for the petitioner and is of the view that once the respondents had disclosed their mind by issuing show cause notice dated 20.08.2020, not choosing to take action of blacklisting against the petitioner, there is every possibility that on giving fresh chance to the respondents, they will proceed against the petitioner with a prejudiced mind and preconceived notion, thereby the compliance of the principles of natural justice will be mere an eye wash.
40. Under the aforesaid facts and circumstance, the Order No.03/ISSNIP/2019-2020/1860 dated 15.12.2021 passed by the respondent no.2 is hereby quashed.
1741. The writ petition is allowed.
42. I.A. No.7477 of 2021 also stands disposed of.
(Rajesh Shankar, J.) Sanjay/AFR