2015 (8) TMI 1548 - HC - Indian Laws

Blacklisting the petitioner from the panel of the respondent SDMC - non-payment by the petitioner of the outstanding dues - HELD THAT - There can be no proposition of law in absolute terms that pendency of a litigation between the contractor and an authority / body / municipality / government, the dispute wherein entitles the authority / body / municipality / government to exercise the power to blacklist the contractor, cannot be a ground to deprive such authority / body / municipality / government from exercising the power of blacklisting. If it were to be so held, it would become very easy for a contractor to defeat the right of the authority / body / municipality / government to blacklist, by, as soon as the dispute has arisen, initiate the litigation - It would thus follow that the exercise of the power to blacklist is independent of any provision therefor in any law or in the contract. The right of the government / governmental agency to blacklist is in addition to the right to make a claim for the amount, which according to it is outstanding or any other right which it may have under the contract or law. Whether invocation of one right i.e. of initiating recovery proceedings, would bar the invocation of another right i.e. to blacklist? - HELD THAT - The power to blacklist, in this case on the ground of non-payment of dues, is independent of the power to recover the said dues, whether by instituting arbitration proceedings or by instituting a suit for recovery of the said amount and the mere pendency of such proceedings would per se not be a bar to the exercise of the power to blacklist. If during the pendency of legal proceedings the power to blacklist has been invoked, what would be the proper fora for entertaining a challenge if any made to the exercise of such power-whether by way of an independent proceeding or by way of an application for interim relief in the pending legal proceedings? - HELD THAT - If blacklisting is on the same grounds which are subject matter of pending legal proceedings, the proper mode for challenging the said action of blacklisting would be by way of an application for interim relief in the same legal proceedings. The adjudication of a challenge to the order of blacklisting would necessarily entail determination, at least prima facie, of the grounds of blacklisting. It is opined that the Court / Arbitral Tribunal before which the disputes are already pending adjudication, would be a more appropriate fora for determining the said factor and / or for balancing the equities, being already seized of the matter. Permitting such challenge to be made by an independent proceeding, whether by way of a suit or a writ petition, would not only lead to multiplicity of proceedings but may also be capable of conflicting views and decisions and which are to be best avoided. In the present case, rather than adopting the aforesaid course of action it is deemed appropriate that the Arbitrator Mr. Bharat Bhushan Addl. District Judge (Retd.), before whom the proceedings are pending, be requested to dispose of the same as expeditiously as possible and before 30th November, 2015. The said time has been arrived at after understanding from the counsels the stage at which the arbitration proceedings are pending and the time required to be taken by them for further proceedings and on their assurance that they will not seek any adjournment and fully co-operate with the Arbitral Tribunal in disposal of the arbitration proceedings by the said date. Petition disposed off.

Summary

Issues Involved:
1. Blacklisting of the petitioner by SDMC.
2. Pendency of arbitration proceedings.
3. Compliance with principles of natural justice.
4. Authority and power of the government to blacklist.
5. Proper forum for challenging blacklisting during pending legal proceedings.

Detailed Analysis:

1. Blacklisting of the petitioner by SDMC:
The petitioner challenged the order dated 6th August 2015 by the South Delhi Municipal Corporation (SDMC) blacklisting the petitioner due to non-payment of outstanding dues amounting to Rs. 2,19,90,723/-. The petitioner argued that the blacklisting was unjustified as arbitration proceedings regarding the same claim were pending.

2. Pendency of arbitration proceedings:
The petitioner relied on previous judgments (SPS Engineering Ltd. Vs. Indian Oil Corporation Ltd., Indian Oil Corporation Ltd. Vs. SPS Engineering Ltd., and National Building Construction Corporation Limited Vs. New Delhi Municipal Council) to argue that the SDMC should have awaited the outcome of the arbitration proceedings before blacklisting. However, the court opined that the mere pendency of arbitration does not bar the exercise of the power to blacklist. It was emphasized that allowing such a bar would enable contractors to easily defeat the right of the authority to blacklist by initiating litigation as soon as a dispute arises.

3. Compliance with principles of natural justice:
The court noted that the blacklisting order did not indicate that any show cause notice or hearing was provided to the petitioner before the blacklisting. The court referenced its recent judgments, which held that blacklisting without issuing a show cause notice and without giving an opportunity for a hearing, and for an indefinite period, is invalid. The court directed that proper procedures, including issuing a show cause notice and providing an opportunity for a hearing, must be followed.

4. Authority and power of the government to blacklist:
The court reiterated the Supreme Court's stance in Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and Patel Engineering Limited Vs. Union of India, affirming that the government has the power to blacklist a contractor as part of its executive functions. This power is inherent and does not require statutory grant. The government must act fairly and rationally in exercising this power. The court concluded that the power to blacklist is independent of the power to recover dues and is not barred by the pendency of arbitration or other legal proceedings.

5. Proper forum for challenging blacklisting during pending legal proceedings:
The court discussed whether the challenge to blacklisting should be made through an independent proceeding or as an application for interim relief in the pending legal proceedings. The court concluded that if blacklisting is based on the same grounds as the pending legal proceedings, the appropriate forum for challenging the blacklisting would be the same court or arbitral tribunal handling the ongoing proceedings. This approach avoids multiplicity of proceedings and potential conflicting decisions.

Conclusion:
The court decided that the blacklisting order should not be enforced until the arbitration proceedings conclude. The arbitrator was requested to expedite the proceedings and conclude by 30th November 2015. If the arbitration award favors SDMC, the SDMC must issue a show cause notice specifying the period of blacklisting and provide an opportunity for the petitioner to be heard before finalizing the blacklisting period. The petitioner retains the right to seek legal remedies if aggrieved by the final order.

Disposition:
The petition was disposed of with directions to the arbitral tribunal to expedite the proceedings and a temporary stay on the blacklisting order until the arbitration award is issued. No costs were awarded.