w w w . L a w y e r S e r v i c e s . i n



The Indian Oil Corporation Limited, Kerala State Office, Rep. by Its Deputy General Manager, Kochi & Others v/s Servotech Power Systems Ltd., Represented by Its Whole Time Director Nimesh Malhotra, New Delhi

    WA. No. 140 of 2022

    Decided On, 27 June 2022

    At, High Court of Kerala

    By, THE HONOURABLE CHIEF JUSTICE MR. S. MANIKUMAR & THE HONOURABLE MR. JUSTICE SHAJI P. CHALY

    For the Appellants: E.K. Nandakumar, Sr. Advocate, M. Gopikrishnan Nambiar, K. John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C. Abraham, Raja Kannan, Advocates. For the Respondent: V. Sajith Kumar, (B/O), Advocate.



Judgment Text

Shaji P. Chaly, J.

1. Respondents in W. P. (C) No. 17593 of 2021 have preferred the appeal challenging the judgment of the learned Single Judge dated 05.01.2022 whereby the writ petition was allowed and Ext. P1 decision taken by the appellants to put the writ petitioner / 1st respondent, a contractor, in holiday list for a period of one year starting from 17.08.2021 is quashed.

2. Brief material facts for the disposal of the appeal are as follows:-

3. The appellant Oil Corporation had invited tenders for replacement of non-LED lights with LED lights on canopy & Yard Lights and allied works at retail outlets under various Divisional Offices of Kerala State, including Kozhikode, Trivandrum and Kochi. The tender conditions were specifically laid down and the tender notification also stipulates the conditions for holiday listing of entities, if any adverse situations are arising out of the contract, consequent to the default or negligence on the part of the contractor.

4. Ext. P2 is the relevant pages of the tender notice. Petitioner participated in the tender process, and being successful, entered into a contract for the replacement of non-LED lights with LED lights on canopy & Yard Lights and allied works at retail outlets under Trivandrum and Kozhikode Divisional Office within the State of Kerala on 16.06.2018 and 15.10.2018 respectively, evident from Exts. P3 and P4 contracts.

5. According to the writ petitioner, pursuant to Exts. P3 and P4 contracts, respondent Corporation issued work orders for 61 retail outlets (ROs) under Trivandrum Divisional Office for an amount of Rs. 2,11,50,778/- and under Kozhikode Divisional Office for Rs. 2,70,98,473.27/-, evident from Exts. P5 and P6 work orders. According to the petitioner, work awarded with the petitioner under the Kochi Divisional Office was successfully completed by the petitioner.

6 Admittedly, there was delay in execution of the work, which according to the petitioner was due to reasons beyond its control and it has taken all earnest and best efforts to carry on with the work. In fact, in regard to the delay in non-execution of the work, several correspondences were exchanged by and between the parties through e-mail and petitioner has also submitted Ext. P11 letter dated 06.11.2019. But fact remains the work awarded to the petitioner was terminated as per Ext. P17 letter dated 08.02.2021, after providing show cause notice and receiving reply from the petitioner, so far as concerning the Trivandrum Division; however without causing prejudice to the rights of the oil corporation under the contract or anywhere else. Later, the same procedure was adopted and Ext. P19 letter dated 13.04.2021 was issued terminating the contract awarded to the petitioner under the Kozhikode Divisional Office.

7. It is the case of the petitioner that even though petitioner made earnest efforts to conciliate the matter and settle the same through arbitration proceedings, the efforts made by the petitioner did not fructify. While so, Ext. P22 show cause notice was issued by the appellant Corporation to the petitioner to show cause as to why the petitioner shall not be holiday listed (blacklisted) in terms of clause 42.7 of Ext. P2, special terms and conditions of contract.

8. Admittedly, petitioner has given Ext. P23 detailed reply refuting the allegations made and also requesting to withdraw the proceedings initiated against it for holiday listing. Anyhow after considering the reply submitted by the petitioner, the appellant Corporation has issued Ext. P1 order by which the petitioner was put on holiday list for a period of one year as is provided in Ext. P1. In the writ petition, petitioner has challenged only Ext. P1 order of holiday listing, however the termination orders issued by the appellant Corporation as per Exts. P17 and P19 communications dated 12.02.2021 and 13.04.2021 were not challenged.

9. The learned Single Judge, after considering the factual and legal circumstances projected by the parties; the implications of the notice inviting tender; and the terms and conditions of the contract, has held as follows:-

“17. After examining Ext.P23 reply given by the petitioner and Ext.P1 order of the respondents, this Court finds that the respondents have decided the issue on a very casual and mechanical manner without applying mind properly. In Ext.P23, the petitioner has stated that the petitioner has been working with the 1st respondent Corporation on a Pan India basis for a long period and had completed such works satisfactorily. This would include an identical work in Kochi Division. This is an important factor to be considered while taking the extreme step of Blacklisting/Holiday Listing of any entity. The respondents have not adverted to this factor at all.

18. The petitioner had stated that the work could not be completed during the initial time granted due to heavy rains and labour issues. The respondents have rejected this contention stating that nevertheless the petitioner ought to have completed the work. In the counter affidavit, the respondents have stated that the rainy season in Kerala is from June to September and the contractual period of work was prior to the season. It is a fact known to all that in the years 2018 and 2019, Kerala has been witnessing unprecedented rains and flood disasters. The fact being so, as the Principal/Employer, the 1st respondent ought to have considered the issue in a pragmatic manner.

19. The petitioner had stated that the delay was attributable to the delay in getting clearance from the TPI. The TPI is an agency and Management Consultant, engaged by the respondents. This reason has been simply brushed aside in Ext.P1 order stating that approval by TPI is a part of the contract and the petitioner ought to have moved in advance. At the same time, the respondents, in their counter affidavit, state that the 1st respondent has not engaged the TPI in subject work. It is therefore evident that the respondents have not applied their mind in the manner required under the circumstances of the case, in respect of the delay in getting TPI approvals.

20. It was the specific case of the petitioner in Ext.P23 that certain officer in the Divisional Office has been withholding payment towards canopy lights supplied stating that clearance from State Office is necessary. This allegation has been rejected for the reason that the petitioner has not adduced any proof in this regard. This Court fails to understand as to what “proof” the petitioner could have possibly adduced in respect of the matter which could have been verified by the respondents from their own files. Had the petitioner been granted an opportunity of personal hearing, the petitioner could have adduced at least available oral evidence. Such an opportunity was not given.

21. Ext.P1 order has been passed in a very mechanical manner. The petitioner is a Company which has been doing business with the respondents for long years. According to the petitioner, they have successfully completed works of the 1st respondent worth more than Rs. 100 Crores cross India. The petitioner has completed an identical work successfully in Kochi Division. The delay occurred in Trivandrum and Kozhikode Division and the respondents have terminated those contracts. The respondents are not amenable to neither conciliation nor arbitration, over the dispute. The 1st respondent is an instrumentality of the State. In the circumstances, the respondents ought to have taken a decision on Holiday Listing of petitioner- Company in a pragmatic manner and with due application of mind. Ext.P1 lacks both.

The writ petition is therefore allowed. Ext.P1 is therefore set aside.”

10. It is thus challenging the legality and correctness of the judgment of the learned Single Judge the appeal is preferred by the Corporation and its officials.

11. The paramount contention advanced by the Corporation is that the learned Single Judge was not right in striking down the holiday listing order dated 17.08.2021, though the learned Single Judge did not find that the action of the appellants as arbitrary or perverse or malafide or irrational. It is also contended that in the reply filed by the petitioner to the show cause notice, petitioner has not requested for any personal hearing, even though findings are rendered by the learned Single Judge otherwise in the judgment. It is also submitted that the holiday listing was done by the appellants, taking into account also the reasons for discharging the obligations of the writ petitioner under the contracts entered into by and between the appellants and the writ petitioner, and also in terms of the special terms and conditions contained under Ext. P2 notice inviting tender.

12. That apart it is contended that the termination was done after a detailed procedure undertaken by the appellants and giving sufficient opportunity of participation in the proceedings to the petitioner, and after assimilating the factual circumstances by which the petitioner failed to discharge the obligations created under the contract. It is also submitted that since the petitioner has not challenged the termination orders issued by the appellant Corporation, after issuing show cause notice and providing sufficient opportunity of participation, the challenge made by the petitioner against the holiday listing alone is unable to be sustained under law.

13. Apart from the same, it is contended that merely because the petitioner had earlier entered into contracts with the appellant Corporation and discharged the obligations in accordance with the terms of the contract, that would not in any manner dissuade the appellants from initiating appropriate action against the petitioner in a subsequent contract consequent to the petitioner failing to discharge the terms and conditions of the contract, by virtue of the powers conferred under the stipulations in the notice inviting tender. It is also pointed out that in spite of lapse of several months after the contract period, the petitioner did not discharge his obligations though maximum time was given by the appellants to the petitioner to complete the terms of the contract.

14. On the other hand, learned counsel appearing for the writ petitioner submitted that the appellants are not empowered to holiday list the writ petitioner on the basis of the termination orders and the petitioner is left with the right and liberty to challenge the termination orders in a later proceedings. It is also submitted that the petitioner could not complete the work on time due to the emergent situations prevailing in the community due to Covid – 19 pandemic and other adverse situations and therefore the holiday listing is bad in law and against the terms and conditions of the contract.

15. We have heard learned Senior Counsel for the appellants Sri. E. K. Nandakumar assisted by Sri. Paulose C. Abraham and Sri. V. Sajith Kumar for the respondent / writ petitioner and perused the pleadings and material on record.

16. The issue of termination and holiday listing are guided by clear provisions of Ext. P2 notice inviting tender. Clauses 42.4 and 42.6 deal with termination of contract and or putting the party on holiday list for a specified period.

17. Clause 42.7 deals with the reasons for putting a party on holiday list, which reads thus:-

“42.7 Party may be put on Holiday List due to the brief reasons are listed below;

* Has indulged in malpractices such as bribery, corruption, fraud and pilferage.

* Is bankrupt or is being dissolved or has resolved to be wound up or proceedings for winding up or dissolution have been instituted.

* Has submitted fake, false or forged documents/certificates.

* Has submitted materials in lieu of materials supplied by Indian Oil or has not returned or has short returned or has unauthorized disposed off materials/documents/drawings tools or plants or equipment supplied by Indian Oil.

* Has obtained official company information or copies of documents in relation to the tender/contract, by questionable methods/means.

* Has deliberately violated and circumvented the provisions of labour laws/regulations/rules, safety norms or other statutory requirements.

* Has deliberately indulged in construction and erection of defective works of supply of defective materials.

* Has not cleared Indian Oil's previous dues.

* Has committed breach of Contract or has failed to perform a contract or has abandoned the contract.

* Has refused to accept Fax of Acceptance/Letter of Acceptance/Purchase Order/Letter of Intent/Work Order after the same is issued by Indian Oil within the validity period and as per agreed terms and conditions.

* After opening of Price Bid, on becoming L-1, withdraws/revises their bid upwards within the validity period.

* Has parted with, leaked or provided confidential/proprietary information or Indian Oil given to the party only for his use (in discharge of his obligations against an order) to any third party without prior consent of Indian Oil.

* Any other ground for which in the opinion of the Corporation makes it undesirable to deal with the party on grounds as defined in GCC.

* If a communication is received from the Administrative Ministry to ban a party from dealing with Indian Oil.”

18. Here is a case where the contracts were terminated as per Exts. P17 and P19 orders on the ground that the writ petitioner has failed to carry out and complete the work. The said orders are not under challenge.

19. Irrespective of the termination of the contract, as per clause 42.6, a defaulting contractor can be put on holiday list for a specified period. As extracted above, various reasons are assigned under clause 42.7 for putting a party on holiday list. On a conjoint reading of clauses 42.5, 42.6 and 42.7, it is quite explicit that irrespective of the termination of the contract, a contractor can be put on holiday list. Merely because a contract is terminated by the appellant Corporation that will not prevent the appellant Corporation from putting a contractor on holiday list, especially when the right to do so is reserved in the orders of termination.

20. Among various reasons assigned under clause 42.7, one of the reasons of putting a person on holiday list is 9th bullet point thereunder, which reads thus:-

“Has committed breach of contract or has failed to perform a contract or has abandoned the contract.”

21. Therefore the issue with the termination of the contract after issuing show cause notice and considering the objections raised by the writ petitioner having attained finality by virtue of Exts. P17 and P19 termination orders, writ petitioner is not at liberty to assail any findings contained there under.

22. In our considered opinion, the reason assigned in the show cause notice and Ext. P1 impugned order putting the petitioner in holiday list, is the failure of the writ petitioner to complete the contract or has failed to perform a contract in terms of the agreement executed by and between the parties and as per the provisions contained under the notice inviting tender.

23. Even though learned counsel for the writ petitioner submitted that the petitioner is entitled as of right to challenge Exts. P17 and P19 orders of termination in an appropriate proceeding, irrespective of not challenging them in the writ petition in question, we are unable to agree with the same in view of the principles of constructive res judicata contained in Explanation IV of Section 11 of the Code of Civil Procedure, 1908, which reads thus:-

“Any matter which might and ought to have been made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit.”

24. Which thus means, though the cause of action based on the termination of the contracts by Exts. P17 and P19 orders were available for challenge when the writ petition was filed, petitioner failed to challenge them; which can in legal parlance, only mean that the petitioner has relinquished part of the claim, and therefore the relinquished part has attained finality. Therefore consequent to the filing of the writ petition in question, challenging the order of holiday listing alone, the cause of action on the basis of Exts. P17 and P19 terminations are hit by constructive res judicata.

25. It is by now well settled by a plethora of judgments of the Hon'ble Apex Court that the principles of res judicata would apply to writ proceedings .

26. In Daryao v. State of U. P. [AIR 1961 SC 1457] a five Judge Bench has held that now, the rule of res judicata as indicated in Section 11 has no doubt some technical aspects, for instance the rule of constructive res judicata may be said to be technical; but the basis on which the said rule rests is founded on considerations of public policy; that it is in the interest of public at large that a finality should attach to the binding decisions pronounced by courts of competent jurisdiction, and it is also in the public interest that individuals should not be vexed twice over with the same kind of litigation; and if these two principles form the foundation of the general rule of res judicata they cannot be treated as irrelevant or inadmissible even in dealing with fundamental rights in petitions filed under Article 32.

27. In Devilal Modi v. STO [AIR 1965 SC 1150], a five Judge Bench has held as follows:-

“9. It may be conceded in favour of Mr. Trivedi that the rule of constructive res judicata which is pleaded against him in the present appeal is in a sense a somewhat technical or artificial rule prescribed by the Code of Civil Procedure. This rule postulates that if a plea could have been taken by a party in a proceeding between him and his opponent, he would not be permitted to take that plea against the same party in a subsequent proceeding which is based on the same cause of action; but basically, even this view is founded on the same considerations of public policy, because if the doctrine of constructive res judicata is not applied to writ proceedings, it would be open to the party to take one proceeding after another and urge new grounds every time; and that plainly is inconsistent with considerations of public policy to which we have just referred.

* * *

11. As we have already mentioned, though the courts dealing with the questions of the infringement of fundamental rights must consistently endeavour to sustain the said rights and should strike down their unconstitutional invasion, it would not be right to ignore the principle of res judicata altogether in dealing with writ petitions filed by citizens alleging the contravention of their fundamental rights. Considerations of public policy cannot be ignored in such cases, and the basic doctrine that judgments pronounced by this Court are binding and must be regarded as final between the parties in respect of matters covered by them, must receive due consideration.”

28. In State of U. P. v. Nawab Hussain [(1977) 2 SCC 806], a three Judge Bench has held as follows:-

“4. But it may be that the same set of facts may give rise to two or more causes of action. If in such a case a person is allowed to choose and sue upon one cause of action at one time and to reserve the other for subsequent litigation, that would aggravate the burden of litigation. Courts have therefore treated such a course of action as an abuse of its process and Somervell, L.J., has answered it as follows in Greenhalgh v. Mallard [(1947) All ER 255 at p. 257]:

“I think that on the authorities to which I will refer it would be accurate to say that res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subjectmatter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them.”

This is therefore another and an equally necessary and efficacious aspect of the same principle, for it helps in raising the bar of res judicata by suitably construing the general principle of subduing a cantankerous litigant. That is why this other rule has some times been referred to as constructive res judicata which, in reality, is an aspect or amplification of the general principle.

5. These simple but efficacious rules of evidence have been recognised for long, and it will be enough to refer to this Court's decision in Gulabchand Chhotatal Parikh v. State of Bombay [AIR 1965 SC 1153: (1965) 2 SCR 547) for the genesis of the doctrine and its development over the years culminating in the present Section 11 of the Code of Civil Procedure, 1908. The section, with its six explanations, covers almost the whole field, and has admirably served the purpose of the doctrine. But it relates to suits and former suits, and has, in terms, no direct application to a petition for the issue of a high prerogative writ. The general principles of res judicata and constructive res judicata have however been acted upon in cases of renewed applications for a writ. Reference in this connection may be made to ex parte Thompson [6 QB 720]. There A.J. Stephens moved for a rule calling upon the authorities concerned to show cause why a mandamus should not issue. He obtained a rule nisi, but it was discharged as it did not appear that there had been a demand and a refusal. He applied again saying that there had been a demand and a refusal since then. Lord Denman, C.J., observed that as Stephens was making an application which had already been refused, on fresh materials, he could not have "the same application repeated from time to time" as they had "often refused rules" on that ground. The same view has been taken in England in respect of renewed petitions for certiorari, quo warranto and prohibition, and, as we shall show, that is also the position in this country.

* * *

8. It is not in controversy before us that the respondent did not raise the plea, in the writ petition which had been filed in the High Court, that by virtue of clause (1) of Article 311 of the Constitution he could not be dismissed by the Deputy Inspecor- General of Police as he had been appointed by the Inspecor- General of Police. It is also not in controversy that that was an important plea which was within the knowledge of the respondent and could well have been taken in the writ petition, but he contended himself by raising the other pleas that he was not afforded a reasonable opportunity to meet the case against him in the departmental inquiry and that the action taken against him was mala fide. It was therefore not permissible for him to challenge his dismissal, in the subsequent suit, on the other ground that he had been dismissed by an authority subordinate to that by which he was appointed. That was clearly barred by the principle of constructive res judicata, and the High Court erred in taking a contrary view.”

29. In that view of the matter, we are of the considered opinion that having given sufficient opportunity of participation in the proceedings so far as the termination of contracts are concerned and it having attained finality, the petitioner cannot turn around and contend that still the rights are left open to the petitioner to challenge the orders of termination. Therefore in our view, the contention of the writ petitioner that the reasons assigned in the termination orders cannot be put forth by the appellants in order to sustain the order putting the petitioner on holiday list cannot be legally countenanced.

30. Even though the learned Single Judge has entered a finding in the Judgment that a request has been made for personal hearing by the petitioner in the reply to the show cause notice, on going through the reply, we could not find any such assertion made by the petitioner before the appellants. Moreover, nowhere in Ext. P2 it is specified that hearing shall be provided to the contractor before termination of the contract or holiday listing the petitioner.

31. With respect to the said aspect, learned Senior Counsel for the petitioner has invited our attention to the decisions of the Hon'ble Supreme Court in Patel Engineering Limited v. Union of India and Another [(2012) 11 SCC 257], Gorkha Security Services v. Government (NCT of Delhi) and Others [(2014) 9 SCC 105] and State of Odisha and Others v. Panda Infraproject Limited [(2022) 4 SCC 393].

32. In Patel Engineering Limited v. Union of India and Another [(2012) 11 SCC 257], the Hon'ble Supreme Court has held thus:-

“38. Coming to the submission that R-2 ought to have given an oral hearing before the impugned order was taken, we agree with the conclusion of the High Court that there is no inviolable rule that a personal hearing of the affected party must precede every decision of the State. This Court in Union of Indian and another v. Jesus Sales Corporation, (1996) 4 SCC 69, held so even in the context of a quasi-judicial decision. We cannot, therefore, take a different opinion in the context of a commercial decision of the State. The petitioner was given a reasonable opportunity to explain its case before the impugned decision was taken.”

33. In Gorkha Security Services v. Government (NCT of Delhi) and Others [(2014) 9 SCC 105], the Hon'ble Supreme Court has held thus:-

“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.

17. Way back in the year 1975, this court in the case of M/s. Erusian Equipment & Chemicals Ltd. v. State of West Bengal & Anr.; (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 Para Nos. 12 and 20 of the said judgment. Necessitating this requirement, the court observed thus:

“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.

* * *

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”.

18. Again, in Raghunath Thakur v. State of Bihar and Ors.;(1989) 1 SCC 229 the aforesaid principle was reiterated in the following manner:-

“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.”

19. Recently, in the case of Patel Engineering Ltd. v. Union of India and Anr.; (2012) 11 SCC 257 speaking through one of us (Jasti Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner:

“13. The concept of “blacklisting” is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. 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.”

14. 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.

15. It follows from the above judgment in Erusian Equipment case 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.”

20. 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 Engineering (supra).”

34. In State of Odisha and Others v. Panda Infraproject Limited [(2022) 4 SCC 393], the Hon'ble Supreme Court has held thus:-

“19. In the instant case a committee submitted a detailed report which was the basis for issuance of the show cause notice to the respondent. The action initiated against the respondent was not in a vacuum but after considering the committee’s report and after following the due procedure as required. Therefore, the High Court has erred in holding that the blacklisting order was predetermined.

20. So far as the findings recorded by the High Court that the blacklisting order was in breach of principles of natural justice is concerned, it is to be noted that the blacklisting order was passed after issuing a show cause notice to which the respondent contractor was called upon to reply and show cause as to why he be not blacklisted. A detailed show cause notice was issued with specific allegations to which the respondent contractor submitted a detailed reply. After considering the allegations in the show-cause notice, considering the reply and also by considering the material available on record the order of blacklisting was passed. We fail to appreciate, how in such a case the blacklisting order can be said to be in breac

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h of principles of natural justice. 21. In Grosons Pharmaceuticals (P) Ltd. & Anr. v. State of U.P., (2001) 8 SCC 604, the order of blacklisting was challenged by the contractor on the ground that the contractor was not supplied with all the materials on the basis of which charges against him were based. It was the case on behalf of the contractor that non-supply of such material resulted in violation of principles of natural justice. To that, this Court observed that it was sufficient requirement of law that an opportunity of show cause was given to the appellant before it was blacklisted. This Court observed that the contractor was given an opportunity to show cause and it did reply to the show-cause to the State Government and therefore the procedure adopted by the Government while blacklisting the contractor was in conformity with the principles of natural justice. 22. In the present case as observed hereinabove, show cause notice was issued upon the contractor by which the contractor was called upon to show cause why he be not blacklisted; the show cause notice was replied to by the contractor and thereafter, after considering the material on record and the reply submitted by the contractor and having found the serious lapses which led to a serious incident in which one person died and eleven others were injured, the State Government took a conscious decision to blacklist the contractor. Therefore, it cannot be said the order blacklisting the contractor was in violation of principles of natural justice. 23. As observed by this Court in the case of Gorkha Security Services v. Govt. (NCT of Delhi) & Ors., (2014) 9 SCC 105, the fundamental purpose behind the serving of a 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 is the nature of action which is proposed to be taken for such a breach. 24. As per the law laid down by this Court in a catena of decisions “debarment” is recognised and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission. It is for the State or appropriate authority to pass an order of blacklisting/debarment in the facts and circumstances of the case. Therefore, the High Court has erred and has exceeded its jurisdiction in exercise of powers under Article 226 of the Constitution of India by quashing and setting aside the blacklisting order, that too, without adverting to the serious allegations and the act of omission and commission on the part of the contractor which led to a serious incident of collapse of ten meter slab while concrete work of the deck was going on and due to which one person died and eleven others were injured. It was specifically found that the safety arrangements were lacking severely in the construction work zone. …. 25. The next question which is posed for consideration of this Court is, whether, in the facts and circumstances of the case the contractor was required to be debarred/blacklisted permanently? 35. These being the facts and law, we are of the firm opinion that interference is required to the judgment of the learned Single Judge. 36. In view of the findings rendered above, the writ petitioner is not entitled to get any of the reliefs as are sought for in the writ petition, especially due to the fact that the appellants have complied with all the requirements in contemplation of the provisions of Ext. P2 notice inviting tender before putting the petitioner in the holiday list. Upshot of the above discussion is that the writ appeal is allowed by setting aside the impugned Judgment, and consequently the writ petition would stand dismissed.
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