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Saturday, August 9, 2014

Black Listing - Show cause Notice - Non- mention of Black listing in the proposed notice - whether it causes prejudice or not - High court held that No prejudice is caused as pleaded by Respondent - Apex court held that In the first instance, we may point out that no such case was set up by the respondents that by omitting to state the proposed action of blacklisting, the appellant in the show cause notice has not caused any prejudice to the appellant. Moreover, had the action of black listing being specifically proposed in the show cause notice, the appellant could have mentioned as to why such extreme penalty is not justified. It could have come out with extenuating circumstances defending such an action even if the defaults were there and the Department was not satisfied with the explanation qua the defaults. It could have even pleaded with the Department not to blacklist the appellant or do it for a lesser period in case the Department still wanted to black list the appellant. Therefore, it is not at all acceptable that non mentioning of proposed blacklisting in the show cause notice has not caused any prejudice to the appellant. =CIVIL APPEAL NOS. 7167-7168 OF 2014 [Arising out of Special Leave Petition (Civil) No. 38898-38899 of 2013) GORKHA SECURITY SERVICES .....APPELLANT(S) VERSUS GOVT. OF NCT OF DELHI & ORS. .....RESPONDENT(S) = 2014 -Aug.part – http://judis.nic.in/supremecourt/filename=41804

 Black Listing - Show cause Notice - Non- mention of Black listing in the proposed notice - whether it causes prejudice or not - High court held that No prejudice is caused as pleaded by Respondent - Apex court held that In the first instance, we may point out that no such case  was  set  up by the respondents  that  by  omitting  to  state  the  proposed  action  of blacklisting, the appellant in the show cause  notice  has  not  caused  any prejudice to the appellant. 
 Moreover,  had  the  action  of  black  listing being specifically proposed in the show cause notice,  the  appellant  could have mentioned as to why such extreme penalty is  not  justified.  It  could have come out with extenuating circumstances defending such an  action  even if the defaults were there and the Department was  not  satisfied  with  the explanation  qua  the  defaults.  It  could  have  even  pleaded  with   the Department not to blacklist the appellant or do it for a  lesser  period  in case the Department still wanted to black list the appellant. Therefore,  it is not at all acceptable that non mentioning  of  proposed  blacklisting  in the show cause notice has not caused any prejudice to  the  appellant.  =

interesting question  of  law  pertaining  to
the form and content of show cause notice, that is required  to  be  served,
before deciding as to whether the noticee is to be blacklisted  or  not. 
We
may point out at the outset that there is no quarrel between the parties  on
the proposition that it is a mandatory  requirement  to  give  such  a  show
cause notice before black  listing.
 It  is  also  undisputed  that  in  the
present case the show cause notice which was given for  alleged  failure  on
the part of the appellant herein to commence/  execute  the  work  that  was
awarded to the  appellant,  did  not  specifically  propose  the  action  of
blacklisting the appellant firm. 
The question is  as  to
whether  it  is  a
mandatory requirement that there has to be a stipulation
contained  in  the show cause notice that action of blacklisting is proposed?
 If  yes,  is  it
permissible to discern it from the reading of impugned  show  cause  notice,
even when not specifically mentioned, that the appellant understood that  it
was about the proposed action of blacklisting that could  be  taken  against
him?=

In the first instance, we may point out that no such case  was  set  up
by the respondents  that  by  omitting  to  state  the  proposed  action  of
blacklisting, the appellant in the show cause  notice  has  not  caused  any
prejudice to the appellant. 
 Moreover,  had  the  action  of  black  listing
being specifically proposed in the show cause notice,  the  appellant  could
have mentioned as to why such extreme penalty is  not  justified.
It  could
have come out with extenuating circumstances defending such an  action  even
if the defaults were there and the Department was  not  satisfied  with  the
explanation  qua  the  defaults.
It  could  have  even  pleaded  with   the
Department not to blacklist the appellant or do it for a  lesser  period  in
case the Department still wanted to black list the appellant.
Therefore,  it
is not at all acceptable that non mentioning  of  proposed  blacklisting  in
the show cause notice has not caused any prejudice to  the  appellant.
This
apart, the extreme nature of such a harsh  penalty  like  blacklisting  with
severe consequences,  would  itself  amount  to  causing  prejudice  to  the
appellant.
34)   For the aforesaid reasons, we  are  of  the  view  that  the  impugned
judgment  of  the  High  Court  does  not  decide  the  issue   in   correct
prospective.
The impugned order dated 11.9.2013 passed  by  the  respondents
blacklisting the appellant without giving the appellant notice  thereto,  is
contrary to the principles of natural justice as  it  was  not  specifically
proposed and, therefore, there was  no  show  cause  notice  given  to  this
effect before taking action of  blacklisting  against  the  appellant.  
We,
therefore, set aside and quash  the  impugned  action  of  blacklisting  the
appellant.
The appeals are allowed to  this  extent.  However,  we  make  it
clear that it would be open to the respondents to take any  action  in  this
behalf after complying with the necessary procedural formalities  delineated
above.
35)   No costs.

2014 -Aug.part – http://judis.nic.in/supremecourt/filename=41804


                                                            REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLANT JURISDICTION
                     CIVIL APPEAL NOS. 7167-7168 OF 2014
   [Arising out of Special Leave Petition (Civil) No. 38898-38899 of 2013)



GORKHA SECURITY SERVICES               .....APPELLANT(S)


                                   VERSUS



GOVT. OF NCT OF DELHI & ORS.                 .....RESPONDENT(S)



                               J U D G M E N T



A.K. SIKRI, J.


Leave granted.
2)    Present appeals raise an interesting question  of  law  pertaining  to
the form and content of show cause notice, that is required  to  be  served,
before deciding as to whether the noticee is to be blacklisted  or  not.  We
may point out at the outset that there is no quarrel between the parties  on
the proposition that it is a mandatory  requirement  to  give  such  a  show
cause notice before black  listing.  It  is  also  undisputed  that  in  the
present case the show cause notice which was given for  alleged  failure  on
the part of the appellant herein to commence/  execute  the  work  that  was
awarded to the  appellant,  did  not  specifically  propose  the  action  of
blacklisting the appellant firm. The question is  as  to  whether  it  is  a
mandatory requirement that there has to be a stipulation  contained  in  the
show cause notice that action of blacklisting is proposed?  If  yes,  is  it
permissible to discern it from the reading of impugned  show  cause  notice,
even when not specifically mentioned, that the appellant understood that  it
was about the proposed action of blacklisting that could  be  taken  against
him?
3)    The  factual  narration,  leading  to  the  impugned  action  viz.  of
blacklisting the appellant firm does not require much  elaboration.  Stating
the following events would serve the purpose  of  addressing  the  issue  at
hand.
4)    The appellant, which is a partnership firm, was awarded  the  contract
vide letter of award dated 1.9.2011 for providing security services in  Shri
Dada Dev Matri  Avum  Shishu  Chiktsalaya,  Dabri,  New  Delhi  (hereinafter
referred to as the 'hospital). This hospital is under the administration  of
Respondent No. 1 viz. Government of NCT of Delhi. The  contract  was  for  a
period of 1 year i.e. from 2.9.2011 to 1.9.2012. The  payment  was  required
to be made contractually to the  appellant  on  monthly  basis.  Though  the
contract was upto 1.9.2012, the  appellant  continued  to  provide  services
even thereafter. The case of the appellant is that it  has  not  been  given
any payment after the expiry of the contract period though  it  worked  till
31.7.2013.
5)    It appears that the  respondents  had  issued  a  communication  dated
4.8.2012,  in  continuation  of  their  earlier  letter  dated   17.10.2011,
requiring the appellant to submit the valid EPF/ ESIC certificate,  list  of
persons deployed  along  with  copies  of  their  educational  certificates,
police verification report, medical examination report etc. and to make  the
payment of prescribed minimum wages to the workers through ECS or by  cheque
and deposit the EPF/ESIC and service tax  etc.  This  communication  further
mentioned that inspite of the lapse of  a  long  period  the  appellant  had
failed to submit the requisite documents/ information  and  was  not  making
full payment of minimum prescribed wages to  its  workmen/  security  guards
nor was providing the statutory  benefits  like  EPF/  ESIC.  Certain  other
deficiencies in the performance of the contract were also  alleged  therein.
The appellant, in the first instance, sent  the  letter  dated  7.8.2012  in
response to the aforesaid notice, stating that it had obtained the  EPF  and
ESIC numbers in respect of deployed security personnel and  deposited  their
contributions towards EPF & ESIC with the concerned  authorities.  Proof  in
support  of  this  was  also  furnished  in  the  form  of  photocopies   of
consolidated challans with the bills. The appellant specifically  maintained
that it had made payment to the workers as per Minimum Wages Act.
6)    Detailed  reply  to  the  notice  dated  4.8.2012  was  given  by  the
appellant on  17.8.2012  wherein  photocopies  of  bio-data  in  respect  of
deployed 32 security personnel alongwith police verification report as  well
as list of security personnel along with their date  of  birth,  educational
qualifications, addresses and EPF & ESIC numbers were  given.  Other  issues
mentioned in notice dated 4.8.2012 were also addressed.
7)    The respondent authorities,  however,  were  not  satisfied  with  the
reply which resulted in serving of the  show  cause  notice  dated  6.2.2013
upon the  appellant  detailing  various  lapses,  which  the  appellant  had
allegedly committed.  Since the entire dispute revolves  around  the  nature
of action that was stipulated therein and  was  proposed  to  be  taken,  we
would like to reproduce that part of the show cause notice in verbatim:
“And whereas, by the above act and omissions, the firm has not  only  failed
to provide minimum wages and extend the statutory benefits and abide by  the
labour laws, but also failed to provide satisfactory services and failed  to
submit the required information/ document, as and when called for  and  also
being  pre-requisite  under  the  tender  terms  and  conditions,  and  have
rendered this hospital at the risk by deputing the less security  personnels
that too without prior intimation of the credentials of the  deployed  staff
and police verification, as such liable to be levied the cost accordingly.
            Therefore, you are directed to show case within 7  days  of  the
receipt of this notice, as to why the action as mentioned above may  not  be
taken against the firm, beside other actions as deemed fit by the  competent
authority.
(emphasis supplied)”.

8)     The  appellant  furnished  detailed  reply  dated  25.4.2013  to  the
aforesaid show cause notice taking the position that the appellant firm  had
adhered to and complied with all the obligations contained in  the  contract
signed between the parties and it was the respondent who  had  defaulted  in
making the payment to the appellant inspite of various reminders issued.  It
was thus maintained that there was no violation of the terms and  conditions
of the agreement on the part of  the  appellant  and  the  respondents  were
requested to withdraw the show cause notice and make the payment due to  the
appellant within 15 days with interest at the rate of 18% from the  date  it
became payable.
9)     On  receipt  of  the  aforesaid  reply,  respondents   sent   another
communication dated 30.5.2013 calling upon the appellant to  submit  certain
documents. This was adverted to by the appellant in the form of reply  dated
8.6.2013 reiterating the position taken earlier  viz.  the  appellants  were
adhering to all the statutory obligations and submitting documents with  the
department. The appellant again  insisted  that  respondents  who  were  not
releasing the payment and instead threatening  the  appellant  to  terminate
the contract.
10)   First communication which was received, thereafter, by  the  appellant
was letter dated 30.7.2013 informing the appellant that the contract of  the
appellant would stand terminated from 31.8.2013  (A.N.)  and  the  appellant
was directed to wind up its work and hand over the charge to  the  in-charge
outsourcing for further arrangements. The appellant took exception  to  this
move on the part of the respondent vide its letter dated 31.7.2013  alleging
that the contract was sought to be terminated without  assigning  any  valid
reasons which was unjustified, that too when no payment  was  made  for  the
services rendered by the appellant. By another letter dated  14.8.2013,  the
appellant repeated its request for release of payment.
11)   At this juncture impugned order dated  11.9.2013  was  passed  by  the
respondents wherein  the  respondents  maintained  that  the  appellant  had
violated the terms and conditions of the Contract Labour Laws and  had  also
not complied with certain other requirements  stipulated  in  the  agreement
between the parties. In view thereof, vide  this  order,  various  penalties
were imposed upon the appellant in the following form:-
(i)   A penalty of Rs. 3000/- (Rupees Three Thousand only) under  clause  27
(c) of the T&C, on account of public complaints.
(ii)  A penalty of Rs. 41,826/- (Rupees Forty  One  Thousand  Eight  Hundred
Twenty Six only) under Clause 27 (c) (a) (i) on  account  of  unsatisfactory
performance and not abiding by the statutory requirements.
(iii) A penalty of forfeiture of performance  guarantees  amounting  to  Rs.
3,70,000/- (Rupees  Three  Lac  Seventy  Thousand  only)  submitted  at  the
commencement of contract.
(iv)  A penalty of blacklisting the firm M/s Gorkha Security  for  a  period
of 4 years from the date of this order, from participating  the  tenders  in
any of the department of Delhi Government/  Central  Government/  Autonomous
Body under the Government.
(v)   Since, the firm has made the payment of wages @ Rs. 4,000/- per  month
per person which is less than the prescribed rates  of  minimum  wages,  and
submitted no proof of payment of  wages,  EPF  and  ESI  etc.  in  spite  of
opportunities given over the years, hence, it  is  ordered  to  release  the
payment only @ Rs. 4,000/- per month per person plus applicable taxes  after
deducting the penalty imposed at 1 &  2  above  and  withhold  rest  of  the
payment of bills to the extent of amount over  and  above  Rs.  4,000/-  per
month per person, till the payment  of  full  wages  to  the  employees  and
submissions  of  the  proof  of  disbursing  minimum  prescribed  wages  and
depositing the EPF  and  ESI  contributions  in  respect  of  each  deployed
employees who have actually  deployed  and  worked  in  this  hospital  duly
verified by the authorities concerned.

12)   The  appellant  preferred  an  appeal  dated  23.9.2013,  against  the
aforesaid order, to the Principal Secretary  (H&FW).  However,  it  did  not
evoke any response  from  the  Secretary  and  in  these  circumstances  the
appellant approached the High Court of Delhi by  filing  the  Writ  Petition
under Article 226 of the Constitution of  India,  seeking  quashing  of  the
orders dated 11.9.2013.  The  said  order  was  assailed  by  the  appellant
primarily on the following grounds:-
(i)   The  show-cause  notice  dated  6.2.2013  made  no  reference  to  the
proposed blacklisting of the appellant and, therefore, the appellant had  no
opportunity to make a representation in this regard;
(ii)  No opportunity of personal hearing was given to the  appellant  before
passing the impugned order; and
(iii) There was no ground for blacklisting the appellant since  no  term  of
the agreement was breached by it.

13)   The learned Single Judge of the High Court did not find any  merit  in
any of the aforesaid grounds and dismissed the writ petition  by  reason  of
the judgment dated 25.10.2013. It was held that the State had the  power  to
blacklist a person, which was  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., as held in Patel Engineering Ltd. v.  Union
of India; (2012) 11 SCC 257. In this judgment, the Supreme  Court  had  also
taken the view that there is no inviolable rule that a personal hearing  has
to be given to the affected party before taking  a  decision.  Referring  to
the terms and conditions of the contract, as contained  in  the  NIT,  which
form part of the agreement, and particularly Clause 27 (a) (ii),  the  Court
noticed that there was specific power reserved by the  respondent  to  black
list the defaulting contractor for a period of 4  years.  In  view  of  that
power it held that the appellant was  rightly  blacklisted.  In  so  far  as
argument of the appellant that show cause notice did not specifically  refer
to the proposed action of black listing,  that  plea  was  rejected  in  the
following terms:

“It would thus be seen that the contract between  the  parties  specifically
empowered the respondents to blacklist the appellant firm.  Therefore,  when
the show cause notice received by the appellant expressly mentioned of  such
action as  may  be  deemed  appropriate  by  the  Competent  Authority,  the
appellant could easily visualize that the action proposed by  the  Competent
Authority could include blacklisting of the appellant-firm. Considering  the
express terms of the contract between the parties, it was not necessary  for
the respondent to specifically refer to the  proposed  blacklisting  in  the
show cause notice issued to the appellant. The purpose of show cause  notice
is primarily to enable the noticee to meet the grounds on  which  an  action
is proposed against it and such grounds were  fully  detailed  in  the  show
cause notice issued to the appellant. In fact, even prior to  issue  of  the
show cause notice, the  appellant  was  aware  of  the  issues  between  the
parties  through  the  notice  dated  4.8.2012.  It  would,  therefore,   be
difficult to say that the appellant did not know what case it  had  to  meet
while responding to the show-cause notice. In any case,  the  appellant  did
respond to the show cause notice without claiming the ambiguity in the  said
notice and, therefore, it is not open to it to assail the impugned order  on
the  ground  that  there  was  no  specific  reference   to   the   proposed
blacklisting of in the said notice”.

14)   Not satisfied with the  aforesaid  outcome,  the  appellant  preferred
Letters Patent Appeal before the Division Bench of the High Court.  However,
it has met the same fate in as much as the  High  Court  has  dismissed  the
appeal vide impugned judgment dated 29.11.2013 affirming the view  taken  by
the learned Single Judge.
15)    It  is  in  this  backdrop,  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?
16)   We have heard the learned Counsel for the  parties  appearing  on  the
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:
17)   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  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”.

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  of  otherwise  of  the
allegations made against the appellant. The appeal is thus disposed of.”

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
[pic]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.”

18)   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).
Contents of Show Cause Notice
19)   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 black listing, this  requirement
becomes all the more imperative, having  regard  to  the  fact  that  it  is
harshest possible action.
20)   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  on  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 be clearly and safely  be  discerned  from  the
reading thereof, that would be sufficient to meet this requirement.
Discussion with reference to the instant case:
21)   With the aforesaid statement of law,  now  let  us  proceed  with  the
present case scenario.
22)   It would be necessary to take note of the relevant portion  of  clause
27 of the NIT under which umbrage is taken by  the  respondents  to  justify
their action, and even appealed to the High Court. Clause  27  (a)  (c)  (a)
reads as under:
“a.... (sic) In case the contractor fails to commence/ execute the  work  as
stipulated in the agreement or unsatisfactory performance or does  not  meet
the statutory requirements of the contract, Department  reserves  the  right
to impose the penalty as detailed below:-

(i)   20% of cost of order/ agreement per week, upto two weeks' delays.

(ii)  After two weeks delay Principal Employer reserves the right to  cancel
the contract and withhold  the  agreement  and  get  this  job  carried  out
preferably from other contractor(s) registered with DGR and then  from  open
market or with other agencies if  DGR  registered  agencies  are  not  in  a
position to provide such  Contractor(s).  The  difference  if  any  will  be
recovered from the defaulter contractor and also shall be blacklisted for  a
period of 4 years from participating in such type of tender and his  earnest
money/ security deposit may also be forfeited, if so warranted.”

23)   It is clear from the reading of the aforesaid clause that  when  there
is a failure on the part of the contractor to comply with the express  terms
of the contract and/ or to commit breach of the said  terms  resulting  into
failure to commence/ execute the work as  stipulated  in  the  agreement  or
giving the performance that does not meet the statutory requirements of  the
contract, the Department has a right to impose various  kinds  of  penalties
as provided in the aforesaid clause. These penalties are  of  the  following
nature:-

(i)   Penalty in the form of 20% of cost of orders/     agreement per  week,
upto delay of 2 weeks.

(ii)  If the delay is beyond 2 weeks then:
a)    To cancel the contract and withhold the     agreement. In that  event,
Department  has    right  to  get   the   job   carried   out   from   other
contractor at the cost of the defaulter      contractor;

b)    To black list the defaulter contractor for a      period of 4 years;

c)    To forfeit his earnest money/ deposits, if so     warranted.

24)   In the present case, it is obvious that action is  taken  as  provided
in sub clause 2(ii). Under  this  clause,  as  is  clear  from  the  reading
thereof, the Department had a right to cancel the contract and withhold  the
agreement. That has been done. The Department has also a right  to  get  the
job which was to be carried out by the defaulting contractor, to be  carried
out from other contractor(s). In such an event, the Department  also  has  a
right to  recover  the  difference  from  the  defaulting  contractor.  This
clause, no doubt, gives further right to the  Department  to  blacklist  the
contractor for a period of 4 years  and  also  forfeit  his  earnest  money/
security deposit, if so required.
25)   It is thus apparent that this sub-clause provides for various  actions
which can be taken and penalties which can be imposed by the Department.  In
such a situation which action the Department proposes to take,  need  to  be
specifically stated in the show  cause  notice.  It  becomes  all  the  more
important when the action of black listing and/  or  forfeiture  of  earnest
money/ security deposit is to be taken, as the clause stipulates  that  such
an action can be taken,  if so  warranted.  The  words  “if  so  warranted”,
thus, assume great significance. It would show that it is not necessary  for
the Department to resort to  penalty  of  black  listing  or  forfeiture  of
earnest money/ security deposit in all  cases,  even  if  there  is  such  a
power. It is left to the Department to  inflict  any  such  penalty  or  not
depending upon as to whether circumstances  in  a  particular  case  warrant
such a penalty. There has to be due application of  mind  by  the  authority
competent to  impose  the  penalty,  on  these  aspects.  Therefore,  merely
because of the reason that clause 27 empowers the Department to impose  such
a penalty, would not  mean  that  this  specific  penalty  can  be  imposed,
without putting the defaulting contractor to notice to this effect.
26)   We are, therefore, of the opinion that it was incumbent  on  the  part
of the Department to state in the  show  cause  notice  that  the  competent
authority intended to impose such  a  penalty  of  blacklisting,  so  as  to
provide adequate and meaningful opportunity to the appellant to  show  cause
against the same.  However,  we  may  also  add  that  even  if  it  is  not
mentioned specifically but from the reading of the  show  cause  notice,  it
can be clearly inferred  that  such  an  action  was  proposed,  that  would
fulfill this requirement.  In the present  case,  however,  reading  of  the
show cause notice does not suggest that noticee could find out that such  an
action could also be taken.  We say so for the  reasons  that  are  recorded
hereinafter.
27)   In the instant case, no doubt show cause  notice  dated  6.2.2013  was
served upon  the  appellant.  Relevant  portion  thereof  has  already  been
extracted above. This show cause notice is conspicuously  silent  about  the
blacklisting action. On the contrary, after stating in detail the nature  of
alleged defaults and breaches of the agreement committed  by  the  appellant
the notice specifically mentions that  because  of  the  said  defaults  the
appellant was “as such  liable  to  be  levied  the  cost  accordingly”.  It
further says “why the action as mentioned above may  not  be  taken  against
the firm, besides other action as deemed fit by  the  competent  authority”.
It follows from the above that main action which the respondents  wanted  to
take was to levy the cost. No doubt, notice further mentions that  competent
authority could take other actions as deemed  fit.  However,  that  may  not
fulfil the requirement of putting the defaulter to the  notice  that  action
of blacklisting was also in  the  mind  of  the  competent  authority.  Mere
existence of Clause 27 in the agreement entered into  between  the  parties,
would not suffice the aforesaid mandatory requirement by vaguely  mentioning
other “actions as deemed fit”.
28)   As already pointed out above in so far as  penalty  of  black  listing
and forfeiture of earnest money/ security deposit is  concerned  it  can  be
imposed  only,  “if  so  warranted”.   Therefore,   without   any   specific
stipulation in this behalf, respondent could not have  imposed  the  penalty
of black listing.

29)   No doubt, rules of natural justice are  not  embodied  rules  nor  can
they be lifted to the position of fundamental rights. However, their aim  is
to secure justice and to prevent miscarriage of  justice.  It  is  now  well
established proposition of law that  unless  a  statutory  provision  either
specifically or by necessary implication excludes  the  application  of  any
rules of natural justice, in  exercise  of  power  pre-judicially  affecting
another must be in conformity with the rules of natural justice.
30)   We are conscious of the following words of wisdom  expressed  by  this
Court through the pen of Justice Krishna  Iyer  in  the  case  of  Chairman,
Board of Mining Examination and Anr. v. Ramjee; 1977 (2) SCC 256:
“If the jurisprudence of remedies  were  understood  and  applied  from  the
perspective of social efficaciousness, the problem  raised  in  this  appeal
would not have ended the erroneous way it did  in  the  High  Court.  Judges
must never forget that every  law  has  a  social  purpose  and  engineering
process without appreciating which justice to the law cannot be done.  Here,
the socio-legal situation we are faced with is a colliery, an explosive,  an
accident, luckily not lethal,  caused  by  violation  of  a  regulation  and
consequential cancellation of the certificate of the delinquent  shot-firer,
eventually quashed by the High Court, for processual solecisms,  by  a  writ
of certiorari.
Natural justice is no unruly horse, no lurking land  mine,  nor  a  judicial
cure all. If fairness is shown by the decision maker to  the  man  proceeded
against,  the  form,  features  and  the  fundamentals  of  such   essential
processual propriety being conditioned by the  facts  and  circumstances  of
each  situation,  no  breach  of  natural  justice  can  be  complained  of.
Unnatural  expansion  of  natural  justice,   without   reference   to   the
administrative  realities  and  other  factors  of  a  given  case,  can  be
exasperating. We  can  neither  be  finical  nor  fanatical  but  should  be
flexible yet firm in this jurisdiction. No man shall be hit below  the  belt
– that is the conscience of the matter.... We cannot  look  at  law  in  the
abstract or natural justice as a mere artefact. Nor can we fit into a  rigid
mould the concept of reasonable opportunity.”

31)   When it comes to the action of blacklisting which is termed as  'Civil
Death' it would be difficult to accept the  proposition  that  without  even
putting the noticee to such a contemplated action and giving  him  a  chance
to show cause as to why such an action be not  taken,  final  order  can  be
passed blacklisting such a person only on the premise that this  is  one  of
the actions so stated in the provisions of NIT.
The “Prejudice” Argument
32)   It was sought  to  be  argued  by  Mr.  Maninder  Singh,  learned  ASG
appearing for the respondent, that even if it is accepted  that  show  cause
notice should  have  contained  the  proposed  action  of  blacklisting,  no
prejudice was caused to the appellant in as much as  all  necessary  details
mentioning defaults/ prejudices committed by the  appellant  were  given  in
the show cause notice and the appellant had even given  its  reply  thereto.
According to him, even if the action of blacklisting  was  not  proposed  in
the show cause notice, reply of the appellant would have remained the  same.
On this premise, the learned ASG has  argued  that  there  is  no  prejudice
caused to the  appellant  by  non  mentioning  of  the  proposed  action  of
blacklisting. He argued that unless the appellant was able to show that  non
mentioning of blacklisting as the proposed penalty has caused prejudice  and
has resulted in miscarriage  of  justice,  the  impugned  action  cannot  be
nullified. For this proposition he referred to the judgment  of  this  Court
in Haryana Financial Corporation and Anr. v. Kailash Chandra  Ahuja;  (2008)
9 SCC 31.
“21. From the ratio laid down in B. Karunakar1 it is explicitly  clear  that
the doctrine of natural justice requires supply of a  copy  of  the  inquiry
officer’s report to the delinquent if such inquiry  officer  is  other  than
the disciplinary authority. It is also clear that non-supply  of  report  of
the inquiry officer is in the breach of natural justice. But it  is  equally
clear that failure to  supply  a  report  of  the  inquiry  officer  to  the
delinquent employee would not [pic]ipso  facto  result  in  the  proceedings
being declared null and void  and  the  order  of  punishment  non  est  and
ineffective. It is for the delinquent employee to plead and prove that  non-
supply of such report had caused prejudice and resulted  in  miscarriage  of
justice. If he is unable to satisfy the court on that point,  the  order  of
punishment cannot automatically be set aside.

31. At the same time, however, effect of  violation  of  the  rule  of  audi
alteram partem has to be considered. Even if hearing is not afforded to  the
person who is sought to be affected or penalised, can it not be argued  that
“notice would have served no  purpose”  or  “hearing  could  not  have  made
difference” or “the person could not have offered any  defence  whatsoever”.
In this connection, it is interesting to note that under  the  English  law,
it was [pic]held few years before that  non-compliance  with  principles  of
natural justice would make the order null and void and  no  further  inquiry
was necessary.

36. The recent trend, however, is of “prejudice”. Even in those cases  where
procedural requirements have not been complied  with,  the  action  has  not
been held ipso facto illegal, unlawful or void unless it is shown that  non-
observance had prejudicially affected the applicant.

44. From the aforesaid decisions, it is clear that though supply  of  report
of the inquiry officer is part and parcel of natural  justice  and  must  be
furnished  to  the  delinquent  employee,  failure  to  do  so   would   not
automatically result in quashing or setting aside of the order or the  order
being declared null and void. For that, the delinquent employee has to  show
“prejudice”. Unless he is able to show that  non-supply  of  report  of  the
inquiry officer has resulted in prejudice  or  miscarriage  of  justice,  an
order of punishment cannot be held to be  vitiated.  And  whether  prejudice
had been caused to the  delinquent  employee  depends  upon  the  facts  and
circumstances of each case and no rule of universal application can be  laid
down.”

33)   When we apply the ratio of the aforesaid judgment to the facts of  the
present case, it becomes difficult to accept the  argument  of  the  learned
ASG. In the first instance, we may point out that no such case  was  set  up
by the respondents  that  by  omitting  to  state  the  proposed  action  of
blacklisting, the appellant in the show cause  notice  has  not  caused  any
prejudice to the appellant.  Moreover,  had  the  action  of  black  listing
being specifically proposed in the show cause notice,  the  appellant  could
have mentioned as to why such extreme penalty is  not  justified.  It  could
have come out with extenuating circumstances defending such an  action  even
if the defaults were there and the Department was  not  satisfied  with  the
explanation  qua  the  defaults.  It  could  have  even  pleaded  with   the
Department not to blacklist the appellant or do it for a  lesser  period  in
case the Department still wanted to black list the appellant. Therefore,  it
is not at all acceptable that non mentioning  of  proposed  blacklisting  in
the show cause notice has not caused any prejudice to  the  appellant.  This
apart, the extreme nature of such a harsh  penalty  like  blacklisting  with
severe consequences,  would  itself  amount  to  causing  prejudice  to  the
appellant.
34)   For the aforesaid reasons, we  are  of  the  view  that  the  impugned
judgment  of  the  High  Court  does  not  decide  the  issue   in   correct
prospective. The impugned order dated 11.9.2013 passed  by  the  respondents
blacklisting the appellant without giving the appellant notice  thereto,  is
contrary to the principles of natural justice as  it  was  not  specifically
proposed and, therefore, there was  no  show  cause  notice  given  to  this
effect before taking action of  blacklisting  against  the  appellant.   We,
therefore, set aside and quash  the  impugned  action  of  blacklisting  the
appellant. The appeals are allowed to  this  extent.  However,  we  make  it
clear that it would be open to the respondents to take any  action  in  this
behalf after complying with the necessary procedural formalities  delineated
above.
35)   No costs.


                                          …...............................J.
                                                             [J.CHELAMESWAR]



                                          …...............................J.
                                                                [A.K. SIKRI]


New Delhi.
August 4, 2014.

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