1. Agreement to supply steel — Failure to execute contract and start supply — Show cause notice ignored — Black-listing for two years — Challenge under Article 226. (Para 1 )
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1995 Supreme(SC) 18
SUPREME COURT OF INDIA
K. RAMASWAMY AND N. VENKATACHALA, JJ.
M/s. Nova Steel (India) Ltd., Petitioner
Versus
M. C. D. and others, Respondents. 1058
Spl. Leave Petn. No. 22863 of 1994
Decided on 6-1-1995.
Important Points
The court held that blacklisting a party is neither arbitrary nor unwarranted if the party fails to fulfill agreed obligations and ignores a show-cause notice, provided the principles of natural justice are followed. Such conduct justifies the exercise of power to debar the party from future contracts.
Subject
Contract Law - Breach of Contract
Act Referred
Headnote
BLACKLISTING OF CONTRACTOR.
Legal Category Hierarchy
Advocates:
R.K.Sharma, S.C.GUPTA
R.K.Sharma, S.C.GUPTA
Table of Contents
2. Challenge against black-listing order on grounds of being unwarranted, arbitrary, or irrelevant. (Para 1 , 2 )
3. Failure to execute contract and respond to show cause notice justified black-listing; the process adhered to principles of natural justice and was not arbitrary. (Para 2 )
4. Black-listing is justified when a party fails to fulfill contractual obligations and ignores a show cause notice, provided principles of natural justice are followed. (Para 2 )
5. Special leave petition dismissed; High Court order upheld. (Para 2 )
6. When is the black-listing of a supplier considered legally justified?
Black-listing is justified when a supplier fails to execute a contract and start supply after acceptance and ignores a show cause notice, provided the action is not arbitrary and follows principles of natural justice. (Para 2 )
7. Does the issuance of a show cause notice satisfy the requirements of natural justice in black-listing proceedings?
Yes, issuing a show cause notice to the party before passing a black-listing order is consistent with the principles of natural justice. (Para 2 )
8. Under what circumstances will a court refuse to interfere with a black-listing order under Article 226?
A court will decline to interfere if the black-listing order is not unwarranted, arbitrary, or irrelevant, and was passed after following due process. (Para 2 )
ORDER
This special leave petition arises from the order of the Division Bench of the High Court of Delhi dated September 28, 1994. Admittedly, the petitioner had negotiated and agreed to supply 3000 MT of Steel to the respondents. Pursuant thereto, the respondents wrote a letter on February 15, 1993 conveying their acceptance and requested the petitioner to enter into the contract and also to start the supply of the steel immediately. Admittedly, the petitioner had not executed the contract. Thereafter, on March 19, 1993, the notice was issued to the petitioner to show cause as to why he should not be black-listed or debarred from having any dealings with the respondents. Even after the receipt of the notice, the petitioner had not given any reply. Consequently, on April 19, 1993, the respondents had debarred the petitioner to enter into the contract for a period of two years. The petitioner challenged the same in CWP No. 577/93. As stated earlier, the High Court refused to interfere with the order.
2. It is thus clear that the petitioner having negotiated with the respondent to supply the iron and received the acceptance in that behalf, he was required to enter into the contract and to start supply immediately, had not done the same. Despite receipt of the notice of show cause, no reply thereto was given. The respondent necessarily has to take further action to get the supply of the required steel. Therefore, they exercised the power and issued notice to the petitioner which would be consistent with the principles of natural justice and passed the offending order black-listing the petitioner for a period of two years. The conduct of the petitioner constrained the respondents to pass the order of black-listing. The exercise of the power therefore cannot be said to be unwarranted nor arbitrary nor irrelevant. The High Court, therefore, is right in declining to interfere with the offending order in exercise of its discretionary power under Article 226 of the Constitution. We, therefore, find no ground warranting interference under Article 136. The S. L. P. is accordingly dismissed.
Petition dismissed.
For Citation: AIR 1995 SC 1057 = 1995(3) SCC 334 = 1995(1) Scale 524.
