1. Supply of transformers under government tenders — Non-supply and delays — Cancellation of purchase orders — Debarment from future tenders and imposition of penalty. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 )
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2023 Supreme(SC) 373
SUPREME COURT OF INDIA
DINESH MAHESHWARI, SANJAY KUMAR, JJ.
Isolators and Isolators through its Proprietor Mrs. Sandhya Mishra – Appellants
VERSUS
Madhya Pradesh Madhya Kshetra Vidyut Vitran Co. Ltd. & Anr. - RESPONDENT(S)
CIVIL APPEAL NOS. 2890-2891 OF 2023 (ARISING OUT OF SLP(C) NOS. 10362-10363 OF 2022)
Decided On : 18-04-2023
Important Points
Administrative actions like debarment or imposing penalties require a specific, unambiguous show-cause notice to satisfy principles of natural justice. Orders exceeding the notice's scope are impermissible. Furthermore, penalties cannot be imposed if the authority's own actions, such as deferring supply, contributed to the default.
Subject
Administrative Law - Tender and Contracts
Act Referred
CONSTITUTION OF INDIA: Art.226
Headnote
(A) Constitution of India - Article 226 - Debarment order - The appeal challenges a High Court order modifying the terms of debarment imposed on the appellant for supply delays, concluding that the appellant was unjustly penalized for delays caused by circumstances beyond their control, particularly a storm affecting their manufacturing. (Paras 5, 13, 24)
(B) Principles of Natural Justice - The necessity for a specific show-cause notice regarding the penalty imposition was emphasized, as it requires detailed notice for any adverse action against an entity, underscoring that blacklisting entails severe consequences for civil and business rights. (Paras 20, 23)
Facts of the case:
The appellant, a transformer manufacturer, faced debarment after failing to complete transformer supplies due to an extraordinary storm and alleged communication lapses from the respondent about order modifications and delays.
Findings of Court:
The court found the debarment order unjust without due consideration of the tempest's impact on production, asserting the need for proper notice before imposing penalties.
Issues: The key issues addressed included whether the appellant's responses to the show-cause notice were adequate and if proper notice was given for penalties.
Ratio Decidendi: The court ruled that the initial show-cause notice failed to adequately inform the appellant about potential penalties, violating principles of natural justice.
Result: Appeals allowed, and the debarment and penalty orders were set aside.
(B) Principles of Natural Justice - The necessity for a specific show-cause notice regarding the penalty imposition was emphasized, as it requires detailed notice for any adverse action against an entity, underscoring that blacklisting entails severe consequences for civil and business rights. (Paras 20, 23)
Facts of the case:
The appellant, a transformer manufacturer, faced debarment after failing to complete transformer supplies due to an extraordinary storm and alleged communication lapses from the respondent about order modifications and delays.
Findings of Court:
The court found the debarment order unjust without due consideration of the tempest's impact on production, asserting the need for proper notice before imposing penalties.
Issues: The key issues addressed included whether the appellant's responses to the show-cause notice were adequate and if proper notice was given for penalties.
Ratio Decidendi: The court ruled that the initial show-cause notice failed to adequately inform the appellant about potential penalties, violating principles of natural justice.
Result: Appeals allowed, and the debarment and penalty orders were set aside.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Mr. Vinay Navare, Sr. Adv. Mr. R.m.sharma, Adv. Mr. Prashant R. Dahat, Adv. Mr. Ashok Kotangale, Adv. Mr. T. R. B. Sivakumar, AOR
For the Respondent(s): Mr. Bharat Siongh, AAG Mr. Ashis Pandey, Adv. Mr. Kshitiz Singh, Adv. Mr. Amit Pawan, AOR
For the Petitioner(s): Mr. Vinay Navare, Sr. Adv. Mr. R.m.sharma, Adv. Mr. Prashant R. Dahat, Adv. Mr. Ashok Kotangale, Adv. Mr. T. R. B. Sivakumar, AOR
For the Respondent(s): Mr. Bharat Siongh, AAG Mr. Ashis Pandey, Adv. Mr. Kshitiz Singh, Adv. Mr. Amit Pawan, AOR
Table of Contents
2. Challenge to debarment and penalty — Lack of specific show-cause notice for penalty — Impact of supply deferment order — Disproportionality of punitive measures. (Para 13 , 16 , 18 )
3. Absence of specific notice for penalty — Failure to justify maximum penalty — Effect of deferment order shifting responsibility from supplier to purchaser. (Para 23 , 24 )
4. Requirement of a valid, particularised, and unambiguous show-cause notice before blacklisting or imposing penalties to satisfy principles of natural justice. (Para 21 , 23 )
5. High Court orders set aside — Debarment annulled — Penalty quashed with directions for refund. (Para 26 )
6. What are the requirements for a show-cause notice before blacklisting an entity?
The notice must be valid, particularised, and unambiguous, specifically mentioning the grounds for action and the proposed penalty or action to allow the affected party a reasonable opportunity to defend themselves, as blacklisting carries severe civil consequences and stigmatisation. (Para 21 )
7. Can a penalty be imposed if the show-cause notice only mentioned debarment?
No. An order traveling beyond the bounds of the notice is impermissible and without jurisdiction. If the notice only proposes debarment, the authority cannot subsequently impose a penalty without providing a specific show-cause notice for that proposed action. (Para 21 , 23 )
8. How does a purchaser's order to defer supply affect the supplier's liability for non-performance?
If a purchaser specifically informs the supplier that supply is deferred until further instructions and fails to issue those instructions, the supplier cannot be held solely responsible for the resulting delay or default in supply. (Para 24 )
JUDGMENT :
DINESH MAHESHWARI, J.
Leave granted.
2. The present appeals are in challenge to the order dated 23.04.2021 as passed by the High Court of Madhya Pradesh, Principal Seat at Jabalpur in Writ Petition No. 12075 of 2020 whereby the High Court partly allowed the writ petition and while maintaining the order of debarment as passed against the appellant, modified its term of operation by making the same effective from 13.02.2020 for a period of three years, instead of being effective from 30.07.2020. The appellant has also challenged the order dated 13.12.2021 in Review Petition No. 894 of 2021, whereby the High Court dismissed the review petition against the said order dated 23.04.2021.
3. Shorn of unnecessary details, the case of the appellant has been as follows:
3.1. The appellant, being a proprietorship firm, has been in the business of manufacturing and repairing of transformers, having its plant at 83, Sector I, Industrial Area, Govindpura, Bhopal for past 30 years. The only customers of the appellant are the distribution companies (Discoms).
3.2. Two tenders, bearing numbers 494 and 532 1[Hereinafter also referred to as ‘TS-494’ and ‘TS-532’ respectively.], were floated by the respondent Madhya Pradesh Madhya Kshetra Vidyut Vitran Company Limited2[‘MPMKVVCL’, for short.]. In relation to TS-494, a purchase order was issued by the respondents on 30.06.2017 for the supply of 586 distribution transformers (DTR) - Level I. The period for the supply was specified as six months starting from the third month of the purchase order issue date. However, the appellant received the purchase order through email on 13.09.2017 and physically on 15.09.2017. The appellant made a request to the respondents to modify the delivery schedule due to delay of 75 days in the receipt of the purchase order, as also to adjust the rates as per Goods and Services Tax (GST), which came into effect on 01.07.2017.
3.3. The appellant has averred that despite receiving no response from the respondents, they had proceeded to submit drawings for approval on 04.10.2017, with the intention of commencing production. In addition, the appellant made two separate requests, dated 13.09.2017 and 18.11.2017, for modifications of the delivery schedule and adjustments of rates in accordance with GST. According to the appellant, on 28.11.2017, the department responded only to the request for approval of drawings and disregarded the request for rescheduling of supplies.
3.4. A revised order, incorporating GST, was issued by the respondents on 02.01.2018. However, the request for rescheduling of supplies made by the appellant was ignored and, instead, the order stated that the appellant was already running late in their supply schedule. Thereafter, a notice dated 13.02.2018 was issued alleging that the appellant was responsible for the delay in supply. The appellant, by letter dated 18.02.2018, responded that there was no delay on their part while again seeking modification of the delivery schedule.
3.5. It has been the case of the appellant that despite making five separate requests to reschedule the supply, no response was received from the respondents. The appellant submitted yet another letter dated 07.03.2018, requesting for extension of time. The appellant has stated the grievance that despite their efforts to supply Level-I transformers, starting from 02.05.2018 and delivering 300 transformers, the respondents did not reschedule the supply, and instead imposed late supply penalties on the appellant's bills; and deducted penalties to the tune of over Rs. 11 lakh from the bills of the appellant for 300 transformers.
3.6. On the other hand, the appellant had received a purchase order from the respondents for the supply of 593 transformers for Tender No. TS-532, which was for the supply of 63 KVA and 25 KVA level-II transformers. The total requirement for the respondents and two other Discoms was around 75,000 transformers. The purchase order was issued on 22.02.2018 by th
