1. Contractor challenged termination of contract and order of blacklisting for five years following structural failure of a project and subsequent administrative inquiries. (Para 6 , 7 , 8 )
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2026 Supreme(SC) 337
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, ALOK ARADHE, JJ.
M/s A.K.G. Construction And Developers Pvt. Ltd – Appellants
Versus
State of Jharkhand & Ors. – Respondents
Civil Appeal No(s). 4152 of 2026 Arising out of SLP (C) No. 23858 of 2025 With Civil Appeal No(s). 4153 of 2026 Arising out of SLP (C) No. 22669 of 2025
Decided On : 02-04-2026
Important Points
A blacklisting order requires a specific show-cause notice to uphold principles of natural justice; its absence renders the blacklisting illegal and arbitrary.
Subject
Administrative Law - Contractual Relations
Act Referred
CONSTITUTION OF INDIA: Art.226
Contractor Registration Rules: R.10, R.10.1.15, R.10.1.8, R.10.3, R.10.4
Contractor Registration Rules: R.10, R.10.1.15, R.10.1.8, R.10.3, R.10.4
Headnote
(A) Judicial Review - Standards of Legality, Rationality, and Proportionality applicable to administrative actions regarding contracts, particularly in termination and blacklisting contexts - Blacklisting without proper notice is not justified (paras 2, 3, 12, 22).
(B) Termination - Upheld due to clear evidence of negligence in construction, as established in multi-level enquiries and reports from institutions (paras 3, 25).
(C) Blacklisting - Reversed due to failure to adhere to principles of natural justice, including lack of a proper show-cause notice (paras 4, 19, 24).
Facts of the case:
The appellant, a contractor, faced termination of contract and blacklisting arising from the collapse of an Elevated Service Reservoir, attributed to alleged negligence, despite offering to reconstruct at its own expense.
Findings of Court:
The termination was substantiated while the blacklisting order was quashed due to procedural infirmities and lack of proper notice.
Issues: Whether the blacklisting was legally justified given the lack of a proper show-cause notice and the nature of the consequences of blacklisting.
Ratio Decidendi: The court reaffirmed the necessity of issuing a specific show-cause notice before blacklisting due to its severe implications, setting aside the blacklisting based on this principle.
Result: The appeals against termination dismissed while the order of blacklisting set aside.
(B) Termination - Upheld due to clear evidence of negligence in construction, as established in multi-level enquiries and reports from institutions (paras 3, 25).
(C) Blacklisting - Reversed due to failure to adhere to principles of natural justice, including lack of a proper show-cause notice (paras 4, 19, 24).
Facts of the case:
The appellant, a contractor, faced termination of contract and blacklisting arising from the collapse of an Elevated Service Reservoir, attributed to alleged negligence, despite offering to reconstruct at its own expense.
Findings of Court:
The termination was substantiated while the blacklisting order was quashed due to procedural infirmities and lack of proper notice.
Issues: Whether the blacklisting was legally justified given the lack of a proper show-cause notice and the nature of the consequences of blacklisting.
Ratio Decidendi: The court reaffirmed the necessity of issuing a specific show-cause notice before blacklisting due to its severe implications, setting aside the blacklisting based on this principle.
Result: The appeals against termination dismissed while the order of blacklisting set aside.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Mr. R. Ayyam Perumal, AOR
For the Respondent(s): Mr. Kumar Anurag Singh, Adv. Mr. Jayant Mohan, AOR Mr. Zain A. Khan, Adv. Ms. Adya Shree Dutta, Adv. Ms. Dorjee Ongmu Lachungpa, Adv. Mr. Priyanshu Teotia, Adv. Mr. Dev Aaryan, Adv. Mr. Mohd. Abran Khan, Adv.
For the Appellant(s) : Mr. R. Ayyam Perumal, AOR
For the Respondent(s): Mr. Kumar Anurag Singh, Adv. Mr. Jayant Mohan, AOR Mr. Zain A. Khan, Adv. Ms. Adya Shree Dutta, Adv. Ms. Dorjee Ongmu Lachungpa, Adv. Mr. Priyanshu Teotia, Adv. Mr. Dev Aaryan, Adv. Mr. Mohd. Abran Khan, Adv.
Table of Contents
2. Appellant contended that the blacklisting was arbitrary, lacked natural justice, and the committee lacked impartiality; respondent argued that blacklisting for misconduct was compliant with departmental registration rules. (Para 10 , 11 )
3. The court observed that termination and blacklisting represent distinct actions requiring separate compliance with natural justice; blacklisting, being stigmatic and future-impacting, demands a specific, prior show-cause notice. (Para 2 , 3 , 5 , 15 , 17 , 18 , 22 , 23 )
4. An order of blacklisting, which imposes long-term, exclusionary civil consequences, cannot be passed mechanistically or without a prior, specific show-cause notice indicating the intent to blacklist. (Para 19 , 20 , 21 )
5. Court upheld the order of contract termination but set aside the blacklisting order, directing its immediate cessation due to procedural invalidity and lapse of time. (Para 4 , 5 , 24 , 25 )
6. Is a show-cause notice for contract termination sufficient for a subsequent blacklisting order as well?
No. Blacklisting creates severe civil consequences and impacts future business prospects. Thus, the authority must issue a specific, unambiguous show-cause notice indicating the intent to blacklist to ensure the contractor has a meaningful opportunity to address the specific justification for such a drastic, exclusionary penalty. (Para 18 , 21 , 22 , 23 )
7. Does the power to terminate a contract automatically imply the power to blacklist the contractor?
No. Termination and blacklisting are independent actions in different dimensions. Termination concerns past and subsisting performance, while blacklisting impacts future eligibility. One does not follow the other as an automatic legal consequence; each requires specific application of mind and procedural fairness. (Para 17 , 18 , 23 )
8. What is the consequence of failing to provide a clear show-cause notice before imposing a blacklisting order?
A blacklisting order passed without a prior, specifically targeted show-cause notice is arbitrary and violates the principles of natural justice. Such orders are stigmatic and can be set aside by courts if the procedure for ensuring the contractor's right to representation was not strictly followed. (Para 3 , 19 , 20 , 25 )
9. Can an appellate court mould the relief if a procedural infirmity is identified in a blacklisting order?
Yes. When a blacklisting order is found to be procedurally flawed due to lack of notice, the court may set aside the order and, given the passage of significant time or the impracticality of fresh proceedings, direct that the order cease to operate immediately. (Para 5 , 24 , 25 )
JUDGMENT :
1. Leave granted.
2. While exercising judicial review over administrative actions of the State and its instrumentalities in relation to contracts provisioning clauses and rules relating to termination and/or blacklisting, Courts must apply distinct standards of legality, rationality and proportionately. Such an approach is compelling as conditions for imposing such measures, as also the consequences of such actions, have differing gravity.
3. Upon careful consideration of the impugned State action, which terminates the contract and blacklists the appellant without meaningful distinction, we hold that the termination order is substantiated and justified. However, the blacklisting order suffers from patent infirmities: it evinces no application of mind, disregards the mandatory precept of audi alteram partem, and fails to precede with a show-cause notice requiring the contractor to demonstrate why such drastic action should not be taken. Blacklisting, being stigmatic and exclusionary in nature, cannot be imposed mechanistically but must comport with principles of natural justice and reasonableness.
4. For the reasons detailed hereafter, we uphold the order of termination and the impugned judgement and review order affirming the same, but set aside the decision to blacklist the appellant.
5. Having upheld the order of termination, we were of the opinion that the assumed logical consequence of blacklisting is neither supported by application of mind nor followed by a clear notice proposing blacklisting. For the reasons to follow, we set aside the order of blacklisting. However, in the facts and circumstances of the case, due to passage of time, we have suitably moulded the relief and directed that the order of blacklisting shall not continue for five years as directed by the Department but will cease to operate from the date of our judgment.
Facts
6. The appellant, a registered contractor with the Water and Sanitation Department was contracted for construction of an Elevated Service Reservoir (ESR) by issuance of a Letter of Acceptance (LOA) on 06.03.2023. During the subsistence of the contract, on 01.06.2024, the top dome of the reservoir collapsed. Though it was justified as being a result of an unexpected cyclone, the appellant offered to reconstruct it at own expense. However, the Department issued a show cause notice dated 04.06.2024, seeking explanation as to why action should not be taken for the negligence and bad quality of work. The contents of the show cause notice are as follows -
| “(PURPOTED SHOW CAUSE) GOVERNMENT OF JHARKHAND DRINKING WATER & SANITATION DEPARTMENT Letter No. 4/A.V.-01-1019/2024- 1311 From, Navneet Kumar Under Secretary to the Government. To, M/s. A.K.G. Construction & Developers Pvt. Ltd. Ranchi. Ranchi, Date- 4/6/24 Subject: Regarding submitting clarification. Context: Letter No. 727 of Executive Engineer, Drinking Water and Sanitation Division, Jhumritilaiya, dated 01.06.2024. Sir, As per the directions, the department received information about collapse of the under-construction water tower in Neemadhi village under Koderma-Demchonch Jaynagar Mega Rural Water Supply Scheme through the relevant letter on the above subject. The collapse of the under-construction water tower proves that quality was not taken care of in the construction of the water tower. Due to your not doing quality work as per the agreement in the construction of the water tower, the water tower collapsed due to which the image of the department got tarnished. Therefore, it is directed by attaching a copy of the letter describing tire incident that why action should not be taken against you as per rules for negligence shown by you and not doing quality construction and, ensure to submit your explanation within 03 (three) days. In case of not receiving the explanat |
