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2024 Supreme(Del) 929
IN THE HIGH COURT OF DELHI AT NEW DELHI
SANJEEV NARULA, J.
TR Chadha and Co. LLP - Petitioner
Versus
REC Limited - Respondent
W.P.(C) No. 11440 of 2022 & CM Appl. No. 33773 of 2022
Decided On : 27-11-2024
For the Petitioner:Mr. Amit Sibal, Senior Advocate with Ms. Samapika Biswal, Mr. Vinamra Kopariha, Ms. Soumya Sannidhanam and Mr. Aman Kumar Yadav, Mr. Ankur Vyas.
For the Respondent: Mr. Atul Shanker Mathur, Mr. P. Mehrotra, Mr. Subhankar, Mr. Umang Katakiya.
IMPORTANT POINT
Blacklisting without a show cause notice violates principles of natural justice, necessitating procedural fairness and proportionality in punitive actions.
Headnote:
(A) Principles of Natural Justice - Blacklisting - The Petitioner, a limited liability partnership, was blacklisted by the Respondent without a show cause notice or opportunity to respond, violating principles of natural justice. The Respondent relied solely on a CBI report without independent verification, undermining procedural fairness. (Paras 3, 9, 10, 12)
(B) Proportionality - The court emphasized that blacklisting is a severe action requiring adherence to legal principles and proportionality, ensuring measures are fair and commensurate with alleged misconduct. (Paras 13)
Facts of the case:
The Petitioner was engaged as Lender's Financial Advisor for a power project and was blacklisted by REC Limited based on a CBI investigation into fraudulent activities involving one of its partners.
Findings of Court:
The court found procedural infirmities in the blacklisting order, necessitating a fresh show cause notice to the Petitioner.
Issues: The main issues were the violation of principles of natural justice and the appropriateness of the blacklisting action.
Ratio Decidendi: The court ruled that the absence of a show cause notice and reliance on the CBI report without independent verification violated due process, necessitating a fresh opportunity for the Petitioner to respond.
Result: Impugned order dated 7th July, 2022 is set aside.
JUDGMENT :
Sanjeev Narula, J.
1. The Petitioner, a limited liability partnership, engaged in the profession of Chartered Accountancy, was appointed as Lender’s Financial Advisor for 660 MW coal based Thermal power project which was being set up by M/s Ind-Barath Energy (Madras) Ltd., [“IBEML”] in Tamil Nadu. This work was awarded by Power Finance Corporation Ltd, [“PFC”] vide engagement letter dated 23rd February, 2011 as amended by letter dated 02nd May, 2016.,[Collectively referred to as “the assignment”]
2. The Respondent, REC Limited, is a significant player in the power financing sector and became part of the consortium of lenders that had sanctioned a term loan facility to IBEML in November 2014. However, the Petitioner emphasizes that their contractual relationship was solely with PFC, and there was no direct privity of contract between the Petitioner and the Respondent.
3. The Petitioner challenges the impugned order dated 7th July, 2022, [“Impugned order”] issued by REC Limited blacklisting them from entering into contracts with the Respondent for a lifetime. The Petitioner contends that the order is unsustainable on several grounds, including the violation of Principles of Natural Justice. They argue that the Respondent did not issue any show cause notice or provide an opportunity for the Petitioner to respond to the allegations before passing the blacklisting order. The impugned order is unreasonable and lacks application of mind, as it does not disclose the basis or rationale for the severe action taken. The lifetime blacklisting is excessively harsh and infringes upon the Petitioner’s right to participate in public contracts, affecting its livelihood and reputation. The order is entirely based on a ‘Self-Contained Note’ by the Central Bureau of Investigation (CBI), which was not provided to the Petitioner, impeding their ability to respond effectively.
4. The Respondent, on the other hand argue that the blacklisting order was initiated based on the “Self-Contained Note” enclosed with the CBI communication dated 31st December, 2021. The CBI had conducted an investigation revealing that one of the partners of the Petitioner firm was involved in fraudulent activities related to the project. They further emphasise that since the CBI called upon the Respondent to take appropriate action against the Petitioner, in light of the investigation carried out by them, it was imperative for them to take the impugned action.
5. The Respondent further contends that in cases where a detailed investigation by a competent authority, like the CBI, has established involvement in fraudulent activities, issuing a prior show cause notice is not necessary. The chargesheet filed by the CBI is an outcome of the detailed investigation conducted by them. Moreover, in the final report filed by CBI, one of the partners of the Petitioner’s firm-Mr. Pravin Kumar Jabade is named as an accused. Since, CBI has undertaken a detailed investigation and directed them to take appropriate action against the Petitioner, the blacklisting order without prior show cause notice is not against the Principles of Natural Justice as the allegations and findings raised by the Petitioner are found on sufficient grounds. They also invoke the ‘doctrine of empty formality,’ suggesting that affording the Petitioner any opportunity to respond would not alter the outcome.
6. Regarding the Petitioner’s contention on the lack of privity of contract, the Respondent argues that the Petitioner was appointed as the Lead Financial Advisor (LFA) on behalf of a consortium of lenders. As a member of this consortium, the Respondent assert that they have the right to decide whether to engage with the Petitioner in future contracts, particularly in view of the developments uncovered during the CBI investigation.
7. On the issue of proportionality, the Respondents rely on the Revised Procurement Guidelines, 2016, to contend that the misrepresentation of facts and misleading reporting by a part
