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.
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.
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.
