Blacklisting of Contractors by the Government and Public Sector Undertakings

Blacklisting of Contractors by the Government and Public Sector Undertakings

A contractual relationship necessarily implies consensus of two minds, and a private citizen is free to contract, with any person of his choice. This right by definition is inherent in every person capable of entering into a contract and where a person has the right to make a contract, he also has a concomitant right not to make a contract. The right to refuse to contract does not vest with the Government, its instrumentalities, or Public Sector Undertakings in the same manner as it vests with a common Undertakings citizen. The Government’s right to contract flows from Article 298 of the Constitution. Hence, the parallel right not to contract also rests with the Government who can choose to blacklist any particular person or member of the public. However, this decision has to be taken by the Government reasonably and in accordance with the principles of natural justice. The traditional view that the executive is not answerable in the matter of exercising of prerogative power has long been discarded.

 

The development of law on this issue began with the full bench decision in the case of V. Punnen Thomas vs State of Kerala . The Petitioner claimed that the decision of deleting the name of the appellant from the list of qualified contractors, in effect, amounts to blacklisting which has serious civil consequences and hence, merits an opportunity of being heard. The majority opinion of the Kerala High Court held that the term ‘civil consequences’ does not imply merely consequences which the person concerned finds unfavourable, but infact means that there must be the possibility of an invasion of some civil rights of that person. It was further held that the principle of audi alteram partem could not be applied in such cases as it could lead to hampering of the administration by widening the scope for judicial interference. However, Justice Mathew in the dissenting opinion held that an act of debarring a public entity or member, for a set number of years, without any notice or opportunity to be heard is against all notions of fairness in a democratic government and cannot be sustained. Interestingly, the dissenting view of Justice Mathew is now the law as the majority view stands overruled by the Supreme Court in the Eurasian case.

 

In the landmark judgment of Eurasian Equipment & Chemicals Ltd. vs State of West Bengal , the Supreme Court laid down the law for notice to be given before blacklisting. The Petitioner Company who was engaged in the purchase and export of Cinchona had alleged that their tenders were being rejected by the State Government, despite being the highest in most cases. It was contended that this act of the State Government was discriminatory and against the principles of fairness. The State Government submitted that due to charges of malpractice and misconduct, the State Government had resolved not to deal with the Petitioner-company till the charges were cleared. The State Government further submitted that the rights granted under Articles 14, 19 and 21 of the Constitution cannot be used to compel the Government to negotiate or enter into a contract and the Government was free to contract with companies in whom it had “trust for integrity”. The Hon’ble Supreme Court held that the blacklisting order involves serious civil consequences, as in effect it casts a slur on the reputation of the Company. The Court held that the Government being a Government of laws and not of men is bound to act in conformity with the principles of natural justice when interacting with members of the public. An order of blacklisting creates a disability for the concerned person. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.

 

Again, in the case of Raghunath Thakur vs State of Bihar , where the State Government had blacklisted the Petitioner without any notice or an opportunity to be heard, it was contended by the State that there was no specific requirement in any rule that a notice had to be given to the Petitioner before a blacklisting order. The Supreme Court held that even if the rules do not specify so, it is an implied principle of law that an order having civil consequences should be passed only after following the principles of natural justice. The blacklisting order in respect of business ventures has serious implications upon the future business of the concerned person and merits an opportunity of being heard and making representations against the order.

 

The law stands settled that an order of blacklisting attracts the principle of audi alteram partem, but does this duty of the State include any other facet or aspect of the principles of natural justice. In Grosons Phamaceuticals (P) Ltd. vs the State of Uttar Pradesh, the company had been blacklisted by the State Government after issuing a show cause notice. The company submitted that the principles of natural justice require that the show cause notice ought to have been supplied with all materials which formed the basis for issuing show cause notice. The Supreme Court held that it is true that an order blacklisting an approved contractor results in civil consequences and in such a situation in the absence of statutory rules, the only requirement of law while passing such an order was to observe the principle of audi alteram partem which is one of the facets of the principles of natural justice. The contention that it was incumbent upon the respondent to have supplied the material on the basis of which the charges against the appellant were based, was not the requirement of the principle of audi alteram partem. There was sufficient requirement of law that an opportunity of ‘show-cause’ was given to the appellant before it was blacklisted.

 

In all the cases cited above, the decision to blacklist was taken due to charges of fraudulent or corrupt practices by the affected parties. However, recently the Supreme Court has ruled that an order of blacklisting is sustainable even if it is for dereliction of legal obligation by the concerned person or company. In the case of Patel Engineering Ltd. vs Union of India, the Petitioner-contractor was declared the highest bidder for a development development operation and maintenance project of National Highways Authority of India (NHAI). NHAI called upon the Petitioner to confirm its acceptance who declined stating its inability to confirm the acceptance as, on a subsequent look, the bid was found to be commercially unviable. NHAI sent a show cause notice and after receiving the reply from the Petitioner, blacklisted the company from participating and bidding for future projects for one year. The Supreme Court held that the absence of a contract provision providing for blacklisting is not determinative of NHAI’s authority to blacklist a bidder. The power of NHAI to enter into a contract or not to enter into a contract flows from Section 3 of the National Highways Authority Act which is similar to Article 298 of the Constitution. NHAI being a statutory corporation is bound by the constitutional limitations which binds the State in dealing with members of the public. The Court held that the Petitioner had been given an opportunity of being heard by way of a show cause notice. There is no requirement for the State to give a personal or oral hearing before taking a decision of blacklisting and hence no violation of any principles of natural justice had occurred in the matter to warrant interference by the Court.

 

Recently, the Calcutta High Court has clarified on the validity of a show cause notice or blacklisting order in cases where an arbitration agreement exists between the parties. In the case of Haldia Bulk Terminal Private limited vs. Board of Trustees for the Port of Kolkata, the Petitioner challenged the show cause notice for blacklisting issued by the Respondent. The Petitioner’s stand was that the show cause notice is covered by the arbitration agreement between them. It would be unfair for the Petitioner to be blacklisted before the arbitral reference is concluded. The Respondent contended that an order to blacklist the Petitioner will only affect the future contracts and is de hors the contract and the arbitration agreement. The High Court held that the mere existence of an arbitration agreement does not preclude the Petitioner from blacklisting the Respondent. The existence of recourse to arbitration or even recourse to civil action cannot prevent an employer from blacklisting the contractor on the basis of the employer’s perception of the contractor’s performance qua the contract. However, the show cause notice for blacklisting and subsequently blacklisting can be challenged on the grounds of arbitrariness and mala fides.

 

The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary.

Comments (26)

  1. Arun Dhir says on 29 Mar 2018

    Whether a Firm Blacklisted in one state is eligible for participation in other states government business tenders. Is there any law that restricts other states to do business with a firm Blacklisted in one state of India.

    • Madhu Sweta says on 07 Apr 2018

      Dear Arun,Thank you for your query. In response to the same, we state as under;In case of a government tender circulated within the vicinity of a particular State or within the vicinity of all states of India, the tender conditions play an important role. Especially in case of government tenders (more particular in case of PSU’s), standard conditions of tenders are adopted which particularly spell out clear terms and conditions with respect to Blacklisting.In 90% of Government tenders, these terms and conditions expressly stipulate that if a firm/individual is blacklisted by another governmental body and the period of such blacklisting is still persisting, then such firm/individual would be barred/restricted from entering into any contract with the said State government or its tenders. There are judgments to this effect.However, if the terms and conditions of the tender does not state so, and the period of such blacklisting has also expired, then such firm/individual cannot be barred/restricted from entering into any contract with the said State government or its tenders. There are also judgments to this effect.For a more composite view on a particular tender, the terms and conditions of such tender qua blacklisting and procedures thereof have to be perused and appreciated by us.Please revert in case of any further query.

      • vijay says on 19 Sep 2018

        Dear madhui need clear understanding of the terms debarring and blacklisting.The company i am working with was debarred by a corporation working under Govt of india for a period of three years.for delayed suppliesHowever in past also people have not completed the orders and practice is still going on, but none before or afterwards has been debarredWe have three units under the same name in three states, with same management, as unit i,2 and 3If we were debarred for say unit 2, other units are eligible to participate in Govt tenders?We were issued show cause notice, but no opportunity given for one to one hearingAll this was done with melafide intentions to pave the way for entry of new suppliers,which made entry with new CMD taking charge .Request advice

      • S VASUDEVAN says on 17 Oct 2018

        Blacklisting and debarring order has implications as under:1. Blacklisting order may specify that the order applies to only issuing entity.2. Blacklisting order may also specify or if the administrative Ministry so decides, it would be applicable for all entities functioning under the same Ministry.3. Global effect.

      • Arnav says on 02 Jun 2020

        Can the case laws referred in such cases be elucidated

  2. Arindam says on 18 Apr 2018

    if one proprietor have three firm and if govt. department blacklist one firm out of three, then it is to possible participate name of other two firm( same proprietor) in govt. tender or not

  3. Kumar Saurav says on 23 Apr 2018

    Company is blacklisted but has still received contracts and performed the same. So is there any relevant case decided by Supreme Court

  4. Karmbeer says on 11 May 2018

    यदि प्राकृतिक कारणों से कोई निविदा समय पर पूरी करने में व्यक्ति असर्थ हो तो क्या ऐसे व्यक्ति को कालीसूचीबद्ध किया जा सकता है।

  5. Biswaranjan Garnaik says on 04 Jun 2018

    if criminal proceeding s are going on against a director of a company is the company eligible to participate in govt tenders

    • Kanika Tandon says on 13 Jun 2018

      Dear Biswaranjan,Your query is tender specific in nature which may be evaluated on a case to case basis. If the tender conditions strictly specifies that, any proprietor/director/authorised representative of the company should not be involved in any kind of criminal proceedings as on the date of the bid, then such company would not be considered to be eligible in Government tenders.

    • Debasis Lahiri says on 09 Apr 2021

      yes ,any criminal proceedings against a director does not debar the company from taking part in a Govt./PSU contract. Common Laws does not consider a person guilty unless he is proved guilty beyond doubt. Govt. circulars ,say ,CVC guidelines do not advises such debar . Some PSU , e.g,SAIL,DSP in its service contract contains such clauses going beyond CVC circular and acted on it and punished its officers through CVC procedures. Nobody knows when ,how ,why and who incorporated this claws in the tender documents .

  6. Kanika Tandon says on 13 Jun 2018

    Dear Biswaranjan,Your query is tender specific in nature which may be evaluated on a case to case basis. If the tender conditions strictly specifies that, any proprietor/director/authorised representative of the company should not be involved in any kind of criminal proceedings as on the date of the bid, then such company would not be considered to be eligible in Government tenders.

  7. Subhajit says on 19 Jun 2020

    any law that only currently blacklisted contractors can be debarred from participation by other tendering authorities. In other words, any clause to the effect that contractors or firms should not have been blacklisted for 5 or 10 years is bad in law .

    • supratim says on 14 Jul 2018

      my query is similar to you. our competitors are influencing the departments and putting clauses which say that, a participating firm should not have been blacklisted or debarred during the last 5 years (keep on increasing every year)Is there any law/rule/clause which states the time limit beyond which the firm is free to participate in tenders, because this way a firm cant ever participate in tenders

  8. ashwani kumar mishra says on 04 Jul 2018

    In government department who is competent to blacklist a firm. Whether procuring agency or the competent authority who gives the administrative approval and expenditure sanctions for procuring of goods.

  9. supratim says on 14 Jul 2018

    Hello,Is there is any time limit which bounds a particular firm from participating in govt tenders even after the period of blacklisting is over.I mean if the period of blacklisting is over in 2014, can the firm participate in govt tenders thereafter or is there any rule which restricts them from participating.A reply will be very useful to me.

    • Raj says on 04 Nov 2019

      Obviously once your period is over, you can participate. But the challenge would be experience certificates of the period.You can mention that you have been debarred for the said period and that period is now over. I know it would be hectic and you would need to do a complete reset.90 % of cases Govt employees are very egoistic, they still treat the vendors/contractors as slaves. But dont worry, focus back on your work .. and May God be with you …

  10. Krishna patil says on 06 Nov 2018

    मै लेबर सप्लायर्स contractar हु मुझे अभी एक नगरपरिषद ने कोई भी नोटीस दि नही मैने काम बंद करने की अर्जी देकर काम बंद किया मगर नगरपरिषद ने एक दिन अचानक मुझे मेल किया की आपको ब्लॅकलिस्ट किया जा रहा है अभी मुझे दुसरे तरफ टेंडर करने को बहुत आपत्ती हो रही है

    • Singhania Partners says on 13 Nov 2018

      Dear Krishna patilAs per settled law of blacklisting, all PSUs should follow the principles of natural justice which require that the show cause notice ought to have been supplied with all materials which formed the basis for issuing the notice. Hence, if the said requirement is not complied and no show cause notice is issued before blacklisting, you can challenge the same before the Court of law as arbitrary, illegal and against the principles of natural justice. It would be advisable to first send a legal notice before filing a writ petition before the Court.

  11. Dnp says on 30 Nov 2018

    If any proprietory firm is blacklisted by gov body then his family members are liable to another tenders ….

  12. Avinash says on 24 Dec 2018

    I need to know whether a firm blacklisted by a one govt organization, in particular, one office, not for another branch offices can firm participate in other govt tenders

  13. agamjyot kaur says on 11 Aug 2019

    if one firm is debarred by health department for only marker pen used for polio camp then that firm can be debarred for other stationery by another departments if firm does not disclose about the fact of being debarred as per terms and conditions.

  14. Arun Dhir says on 29 Aug 2019

    Firm is having arbitration cases with State Government Power Utilities. These Utilities empanel (Approve) the firms for supply of material to the contractors doing turnkey work for the utilities. These Power Utilities are not empaneling / approving the firm as empaneled vendor citing the reason of Arbitration cases, thus restricting the future business.

  15. Raja Gorai says on 04 Jun 2020

    For how long a proprietorship firm/company can be blacklisted for submitting a fourg document or credential during a govt. tender?

  16. Manoj says on 05 Aug 2020

    मेरी फ़र्म को 3 साल के लिये ब्लेकलिस्ट कर दिया गया था इन तीन वर्षो मे मेरे द्वारा किए कार्यो का एक्स्सिपिरेन्स है वह माना जाएगा की नहीं

  17. s.kumar says on 28 Nov 2020

    i have participated in govt. tender but due to some reason techno-bid has rejected, without opening price-bid, after one year again i participated in tender now the officers has given a letter for blacklisting the firm, without placing having any contract/order. all acts are doing by officers and another traders against me. they not wants to participate in tender as we are local SSI, MSME , as well as Ancillary unit of government company. as well as our some payment is still with company

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