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SUPREME COURT OF INDIA
T.S. THAKUR, VIKRAMAJIT SEN, JJ.
M/s Kulja Industries Limited – Appellant
Versus
Chief Gen. Manager W.T. Proj. BSNL & Ors. – Respondents
CIVIL APPEAL NO. 8944 OF 2013 (Arising out of S.L.P. (C) No.20716 of 2011)
Decided On : 4 -10-2013
Constitution of India, 1950- Art. 14-Executive action- Permanent black listing of a contractor- Suffice it to say that ‘debarment’ is recognised and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. What is notable is that the ‘debarment’ is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor. (Para 24)
Constitution of India, 1950- Art. 14- Period of blacklisting by State or its instrumentalities- Different periods of debarment depending upon the gravity of the offences, violations and breaches may be prescribed by such guidelines. While, it may not be possible to exhaustively enumerate all types of offences and acts of misdemeanour, or violations of contractual obligations by a contractor, the respondent-Corporation may do so as far as possible to reduce if not totally eliminate arbitrariness in the exercise of the power vested in it and inspire confidence in the fairness of the order which the competent authority may pass against a defaulting contractor. (Para 26)
Constitution of India, 1950- Arts. 226, 32- Judicial review- Contract by State or its instrumentality - Black listing of a party- It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law. (Para 19)
Constitution of India, 1950- Arts. 226, 32- Writ jurisdiction- Contract by State or any of its instrumentalities - The freedom to contract or not to contract – Judicial review- That apart the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because ‘blacklisting’ simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential pre-condition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ Court. (Para 17)
Constitution of India, 1950- Arts. 226, 32- Writ jurisdiction- Contract by State or any of its instrumentalities - Blacklisting of the appellant for allotment of future contracts for all times to come- In cases where a supplier is found guilty of much graver offences, failures or violations, resulting in much heavier losses and greater detriment to the purchasers in terms of money, reputation or prejudice to public interest may go unpunished simply because all such acts of fraud, misrepresentation or the like have not been specifically enumerated as grounds for blacklisting of the supplier in paras 31 and 32 of the tender document. That could in our opinion never be the true intention of the purchaser when it stipulated paras 31 and 32 as conditions of the tender document by which the purchaser has reserved to itself the right to disqualify or blacklist bidders for breach or violation committed by them. If bidders who commit a breach of a lesser degree could be punished by an order of blacklisting there is no reason why a breach of a more serious nature should go unpunished, be ignored or rendered inconsequential by reason only of an omission of such breach or violation in the text of paras 31 and 32 of the tender document. Paras 31 and 32 cannot, in that view, be said to be exhaustive; nor is the power to blacklist limited to situations mentioned therein. (Para 16)
Facts of the case :
The appellant had fraudulently withdrawn a huge amount of money which was not due to it in collusion and conspiracy with the officials of the respondent-corporation.
Findings of the Court :
Permanent debarment from future contracts for all times to come may sound too harsh and heavy a punishment to be considered reasonable especially when (a) the appellant is supplying bulk of its manufactured products to the respondent-BSNL and (b) The excess amount received by it has already been paid back.
Result : Appeal allowed.
Certainly. Based on the provided legal document, here are the key points:
Action Informed by Reason: Every action taken by the State or its instrumentalities must be based on rational grounds. Actions that are uninformed by reason can be challenged as arbitrary, especially under proceedings involving constitutional remedies (!) .
Fairness and Natural Justice: In cases of blacklisting, the principle of audi alteram partem (hear the other side) applies. The affected party must be given a fair opportunity to be heard before any blacklisting order is issued, ensuring fairness in the process (!) .
Judicial Review: Orders of blacklisting are subject to judicial review on grounds of fairness, relevance, natural justice, non-discrimination, equality, and proportionality. The manner, method, and motive behind the decision are scrutinized to ensure they meet these standards (!) .
Proportionality and Fair Hearing: Permanent blacklisting, especially for serious misconduct, must be reasonable and proportionate to the gravity of the offence. Arbitrary or disproportionate blacklisting orders can be challenged and set aside (!) (!) .
Scope of Power to Blacklist: The power to blacklist is not limited to specific grounds listed in tender documents; it inherently includes the authority to disqualify for serious violations such as fraud, misrepresentation, or misconduct, even if not explicitly enumerated. This power is recognized as a business decision that must be exercised reasonably and fairly (!) (!) .
Period of Blacklisting: Blacklisting is generally not intended to be permanent. The period for which a contractor is blacklisted should be determined based on the gravity of the misconduct, with guidelines formulated by the authority to ensure transparency and reduce arbitrariness (!) (!) .
Nature of Blacklisting as a Disciplinary Measure: Blacklisting is akin to a penalty, and its imposition must be justified, fair, and proportionate. The process includes giving the affected party an opportunity to respond and be heard, and the decision must be based on relevant and lawful grounds (!) (!) .
Implications of Blacklisting: A blacklisting order has serious civil consequences, affecting the ability of the contractor to engage in future contracts with the government or its instrumentalities. Therefore, such orders must adhere to principles of fairness, reasonableness, and natural justice (!) .
Reconciliation and Subsequent Actions: Even if excess payments are later refunded or reconciled, the initial act of submitting false claims or engaging in misconduct can still form the basis for blacklisting if the process lacked fairness or was arbitrary (!) .
Guidelines and Fair Process: Authorities should formulate broad guidelines for blacklisting that consider the nature of offences and ensure decisions are transparent, objective, and justifiable. This helps prevent arbitrary decisions and ensures consistency (!) (!) .
Legal Principles for Public Authorities: Actions by public authorities, including blacklisting, must satisfy constitutional principles such as reasonableness, fairness, and equality. These principles serve as the basis for judicial review of administrative decisions affecting rights or interests (!) .
International and Comparative Context: Similar principles are recognized in other jurisdictions, where debarment or suspension is used as a disciplinary tool, and such measures are not intended to be permanent but are subject to review based on the severity of misconduct and adherence to procedural fairness (!) (!) .
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JUDGMENT
T.S. THAKUR, J.
1. Leave granted.
2. The short question that falls for determination in this appeal is whether the respondent-Bharat Sanchar Nigam Limited (for short ‘BSNL’) could have blacklisted the appellant for allotment of future contracts for all times to come. High Court of Judicature at Bombay before whom the blacklisting order was assailed by the appellant has answered that question in the affirmative and dismissed Writ Petition No.2289 of 2011 filed by the appellant giving rise to the present appeal.
3. Two tender notices for supply of Permanent Lubricated HDPE Pipe (Telecom Ducts) and Installation of O.F. Cable through Blowing Technique were issued by BSNL in the year 2004 and 2005. It is common ground that the appellant-company emerged successful in regard to both the tender notices. It is also not in dispute that several orders for supply of the material were placed with the appellant-company during the years 2004-2006 and that goods were supplied to various consignee units of BSNL pursuant to the same. The appellant’s case is that a “receipt certificate” was issued in its favour after delivery of the goods and that bills for payment of the price of the goods were raised in triplicate to the Chief Controller of Accounts, WTP BSNL, Mumbai from time to time. The appellant’s further case is that a single account to receive 95% of the payment due from BSNL was maintained by it and since the amounts received from the respondent-BSNL by cheques did not carry any particulars of the consignment for which such payment was being made it could, in no way, discover excess payment, if any, released by BSNL against the bills sent by the appellant.
4. The appellant’s further case is that on gaining knowledge about the excess payments received by it, an offer for reconciliation of the accounts was made to the BSNL and since any such reconciliation was likely to take 30 to 45 days, the appellant offered to adjust the excess amount credited to its account towards the outstanding bills on an ad hoc basis. A letter dated 10th May, 2006 was, according to the appellant, addressed to the respondent-BSNL in that regard.
5. The respondent-BSNL on the other hand has a different story to tell. According to it four of its officers had abused their official position and fraudulently generated 'voucher numbers' on the duplicate and triplicate copies of the bills submitted by the appellant to facilitate payments as if the said bills were genuine thereby causing wrongful loss to the respondent-BSNL and a corresponding gain to the appellant. There was in this process an excess payment of Rs.7.98 crores made and credited to the account of the appellant by the accounts officer of respondent-BSNL.
6. Taking note of the fraudulent payments made to the appellant, the BSNL lodged an FIR with CBI ACB Mumbai against one of its Senior Accounts Officers and a Director of the appellant-company alleging commission of offences punishable under Section 120B read with Section 420 Indian Penal Code and Section 13(2) read with Section 13(1)(d) of Prevention of Corruption Act, 1988. Investigation that followed has culminated in a charge-sheet filed before the Special Judge for CBI cases, Bombay in which four officials of the BSNL including D. Tripathi-Senior Accounts Officer, Laxman Dixit-Assistant Accounts Officer, Krishnakumari Patnaik-Junior Accounts Officer, Poolchand Yadav-Cashier and Lalit Gupta-Director and Bhavani Sharma-Consultant of the appellant-company have been arraigned as accused persons.
7. What is important for the present is that by a letter dated 21st April, 2010, BSNL blacklisted the appellant permanently on the ground that the appellant had committed gross misconduct and irregularities by receiving excessive payments amounting to Rs.7,98,55,508/-from BSNL thereby wrongfully causing loss to the said company. The appellant denied these allegations, inter alia, contending that BSNL Policy/Manual did not provide for punitive action in the
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