Suspension of Contractor Registration Without Separate Show-Cause Notice Violates Natural Justice, Even if Linked to Contract Termination: M.P. High Court - 2025-05-10

M.P. High Court Quashes Contractor's Suspension, Stresses Need for Separate Hearing

Indore , Madhya Pradesh – The Madhya Pradesh High Court, in a significant ruling, has quashed an order suspending a contractor's registration for two years, emphasizing that a separate show-cause notice and an opportunity for hearing must be provided before such a drastic measure is taken, even if the grounds are similar to those for contract termination. Justice VivekRusia , presiding over the case, allowed the writ petition filed by the contractor.

Case Background

The petitioner, a contractor registered with the M.P. Public Works Department (MPPWD), was awarded a contract for the construction of an Archery Ground at Girls Krida Parisar, Jhabua, in June 2019, with a 12-month completion period. The contractor attributed delays to the late approval of working drawings (December 2019) and provision of the layout (September 2020) by the respondents, as well as directions to re-execute certain column work.

Subsequently, the MPPWD issued a show-cause notice on September 16, 2021, for contract termination under Clause 27 of the agreement, citing non-completion of work. Despite the petitioner's reply explaining the difficulties, the contract was terminated on October 12, 2021. The petitioner had invoked Clause 12 of the agreement for dispute resolution, and an appeal regarding the termination was reportedly pending.

Following the termination, the Additional Project Director issued an order on February 3, 2022, suspending the petitioner's registration for two years due to the non-completion of the work. This suspension order was challenged before the High Court primarily on the ground that no opportunity of hearing was granted specifically for the suspension.

Arguments Presented

Petitioner's Contentions: The contractor argued that the suspension order was passed without a prior hearing, rendering it legally unsound. It was contended that the show-cause notice for contract termination did not encompass the distinct action of registration suspension. The petitioner also argued against being subjected to "double jeopardy" for the same alleged default and cited the Supreme Court's judgment in Tulsi Narayan Garg v. M.P. Road Development Authority (2019 SCC OnLine SC 1158).

Respondents' Stance: The State, representing the MPPWD, countered that the reasons for contract termination and registration suspension were identical. They asserted that the initial show-cause notice and the petitioner's reply to it satisfied the requirement of a hearing. The respondents relied on an MPPWD circular dated March 24, 2015, particularly point No.6, which allows for suspension if a contractor is found non-serious or leaves work incomplete. They further argued that disputed factual questions regarding work completion delays should be addressed by the M.P. Arbitration Tribunal, not in a writ petition.

Court's Reasoning and Application of Precedents

The High Court, after hearing both parties, observed that while the validity of the contract termination was sub judice, the core issue was the lack of a specific hearing before the suspension of registration.

Justice Rusia noted, "The petitioner was served with a show-cause notice before issuing the order of termination of contract which he duly replied, but the petitioner was not given any opportunity of hearing [for suspension]. The petitioner was given a show-cause notice under Clause - 27 of the agreement which only mandates termination of contract, not suspension of registration."

The Court referred to Paragraph 3 of the MPPWD's circular dated March 24, 2015, which states that the competent authority must consider the "seriousness of the conduct" before suspending registration or blacklisting. This, the Court reasoned, necessitates a distinct opportunity to be heard: "Therefore, whether the contractor falls under any of the conditions from 1 to 9 for blacklisting or suspension and the same is serious in nature, an opportunity of hearing ought to have been given by issuing a show-cause notice to him in order to submit explanation or suitable reply."

Distinguishing the Tulsi Narayan Garg case, the Court clarified that it pertained to the recovery of quantified claims pending arbitration. However, for actions like suspension or blacklisting, the Court affirmed they can be taken immediately but stressed, "...for which separate show-cause notice is liable to be issued or opportunity of hearing ought to have been granted as held by the apex Court in catena of judgments."

Crucially, the High Court relied on the recent Supreme Court decision in The Blue Dreamz Advertising Pvt. Ltd. & Another v. Kolkata Municipal Corporation & Others (2024 SCC OnLine SC 1896). Quoting the apex court, Justice Rusia highlighted:

"26. In other words, where the case is of an ordinary breach of contract and the explanation offered by the person concerned raises a bona fide dispute, blacklisting/debarment as a penalty ought not to be resorted to. Debarring a person albeit for a certain number of years tantamounts to civil death inasmuch as the said person is commercially ostracized resulting in serious consequences for the person and those who are employed by him."

"27. Too readily invoking the debarment for ordinary cases of breach of contract where there is a bona fide dispute, is not permissible. Each case, no doubt, would turn on the facts and circumstances thereto."

Final Decision and Implications

Based on these principles and the precedent set in The Blue Dreamz Advertising , the High Court found the order suspending the petitioner's registration unsustainable.

"Taking note of the law laid down by the apex Court in the aforesaid case, the impugned order dated 3.2.2022 (Annexure-P/19) suspending the registration of the petitioner is unsustainable and the same is hereby quashed," Justice Rusia declared, allowing the writ petition.

This judgment reinforces the fundamental principle of natural justice – audi alteram partem (hear the other side) – underscoring that even if administrative actions like contract termination and registration suspension stem from the same cause, a separate and specific opportunity to be heard must be provided for each distinct punitive measure, especially for severe actions like suspension or blacklisting which can have "civil death" like consequences for a contractor.