Vikas Goel  Vikas Goel & Vivek Gupta


19/11/2020

Introduction

The Hon’ble Supreme Court of India in its most recent judgment[1] passed on 16.11.2020 has deprecated and disapproved the action of blacklisting taken by Food Corporation of India (“FCI”) without giving a show cause notice with a specific mention of blacklisting action. In UMC Technologies case, the Apex Court was considering the validity of a show cause notice dated 10.04.2018 issued by FCI stating, besides other things as under:

 

Whereas, M/S UMC Technologies Pvt. Ltd. Kolkata is hereby provided an opportunity to explain its Position in the matter before suitable decision is taken as per T&C of MTF. The explanation if any should reach this office within a period of 15 days of receipt of this notice falling which appropriate decision shall be taken. ex-parte as per terms and conditions mentioned in MTF without prejudice to any other legal rights & remedies available with the corporation.”

 

Decision of the Hon’ble High Court of Madhya Pradesh at Jabalpur:

The High Court vide its order dated 13.02.2019 had upheld the validity of the order dated 09.01.2019 whereby FCI had terminated the contract of service of UMC Technologies/Appellant besides blacklisting the said company from participating in any future tender of the Corporation for a period of 5 years.

 

Decision of the Hon’ble Supreme Court of India:

Before the Hon’ble Supreme Court, the Appellant confined its challenge to the issue of blacklisting and contended that the show cause notice issued by FCI failed to meet the requirements of natural justice as it neither mentioned the grounds necessitating action nor specified what actions were proposed to be taken. Therefore, in essence, the challenge of the Appellant was predicated on the premise that in the absence of a valid show cause notice, the consequent blacklisting order cannot be sustained. On the other hand, FCI contended that the Appellant had breached the terms of the contract by leaking the question papers for the examination and Appellant was not permitted to participate in future tender in public interest. It was contended by FCI that blacklisting order was made as per the Bid Document and hence the same cannot be challenged.

 

The Apex Court extracted the operative portion of the order of blacklisting dated 09.01.2019, which reads as under:

 

“After having examined the entire matter in detail, the shortcomings/negligence on the part of M/s UMC Technologies Pvt. Ltd. stands established beyond any reasonable doubt. Now, therefore in accordance with clause 42.1(II) of the governing MTF, the competent authority hereby terminates the contract at the risk and cost of the Agency. As per Clause No. 10.1 & 10.2 the said M/s UMC Technologies Pvt. Ltd. is hereby debarred from participating in any future tenders of the corporation for a period of Five years. Further, the Security Deposit too stands forfeited as per clause 15.6 of MTF. This order is issued without prejudice to any other legal remedy available with FCI to safeguard its interest.”

 

After considering the contents of show cause notice, the terms of the Bid Document as well as blacklisting order, the Apex Court quashed the order of blacklisting dated 09.01.2019. The Court held that there was nothing in show cause notice which could have given the Appellant the impression that the action of blacklisting was being proposed. The Court also noticed that the clause, which provided for blacklisting was not even referred to in the show cause notice. The Court held that it was incumbent upon the Corporation to clarify in the show cause notice that it intended to blacklist the Appellant, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same. The Court was of the view that mere existence of the clause of the bid document cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show cause notice. Finding that the show cause notice was completely silent about blacklisting, the Court held that the same did not fulfil the requirement of the valid show cause notice and hence the order of blacklisting could not be sustained.

 

Conclusion:

The law relating to action of blacklisting is fairly well settled and can be summarized as under:

  1. The blacklisting involving civil consequences casts slur. Such an action can be taken only on the basis of objective satisfaction of the authority concern. The fundamental of fair play required that the person concerned should be given an opportunity to present his case before he is put on blacklisting[2].
  2. Show cause notice must specifically spell out the intention of blacklisting (UMC Technologies supra).
  3. The order of blacklisting must be speaking order supported with reasons[3].
  4. Blacklisting cannot be for an indefinite period and the period of blacklisting should be fixed based on doctrine of proportionality[4].

 

 

 

 

[1] UMC Technologies Pvt. Ltd. v. Food Corporation of India & Anr. [Civil Appeal No. 3687 of 2020]

[2] (1975) 1 SCC 70- Erusian Equipment & Chemicals Ltd. v. State of West Bengal

[3] (2010) 9 SCC 496- Kranti Associates (P) Ltd. v. Masood Ahmed Khan

[4] (2014) 14 SCC 731- M/S Kulja Industries Ltd vs Chief Gen. Manager W.T.Proj. BSNL