2021 (12) TMI 1097 - HC - Indian Laws

Cancellation of contract for providing healthcare, kitchen and dietary services - petitioners have been blacklisted for a period of two years - HELD THAT - Given the facts of the case, the explanation advanced by the petitioner for being unaware that its GST registration had been cancelled, does not inspire confidence. In these circumstances, keeping in view the manner in which the petitioner secured the contract with the respondent, while there are no infirmity in the respondent s decision to terminate its contract with the petitioner, it is found that respondent s decision to blacklist the petitioner for a period of two years wholly unwarranted. For one, it is a well-known fact that the economy has suffered a major setback ever since the onset of the COVID-19 pandemic and small business, such as the petitioner, are bearing the brunt of this. There are no reason to doubt the petitioner s explanation for the financial difficulties that occasioned the default in paying returns and eventually led to the suspension and cancellation of its GST registration. Small proprietorships, such as the petitioner s, are already flailing in this economy and finding it hard to survive and the respondent, being a State, cannot be blind to this reality. Permitting a punitive action of this nature to continue would deal a greater blow to the survival of small businesses such as the petitioner. After all, as the petitioner has rightly contended, at the time when the impugned order was passed, the entire basis for the respondent s grievance with the petitioner that the GST Department had cancelled its registration stood resolved under the directions of the learned Appellate Authority. The respondent ought to re-consider the decision to blacklist the petitioner and, while doing so, duly take into account the significant fact that the GST Department has itself adopted a compassionate view towards the prevailing circumstances and the strata to which the petitioner and its sole proprietor belong - the impugned order is set aside to the extent that it blacklists the petitioner for a period of two years. The respondent shall reconsider this aspect, by taking into consideration the observations made by this Court today. Petition disposed off.

Summary

Issues:
- Termination of contract and blacklisting of the petitioner for providing false information regarding GST registration.
- Justifiability of the respondent's decision to terminate the contract and blacklist the petitioner.
- Impact of the COVID-19 pandemic on the petitioner's financial situation and GST registration.
- Fairness and reasonableness of the respondent's actions towards a small-scale sole proprietorship.

Analysis:
1. Termination of Contract and Blacklisting: The petitioner, a sole proprietorship providing healthcare services, had its contract terminated and was blacklisted for two years due to submitting a bid with a cancelled GST registration number. The respondent contended that the petitioner knowingly provided false information. The petitioner argued that the cancellation was due to a lack of information and financial difficulties caused by the pandemic, leading to the default in paying returns. The respondent's decision to blacklist the petitioner was deemed excessive and unjustified by the court.

2. Justifiability of Respondent's Decision: The court found the respondent's decision to terminate the contract justified but deemed the blacklisting unwarranted. The petitioner's financial struggles and the restoration of the GST number by the Appellate Authority were considered. The court acknowledged the economic challenges faced by small businesses post-COVID-19 and emphasized the need for a balanced approach by the respondent, a State entity.

3. Impact of COVID-19 Pandemic: The petitioner's financial difficulties, attributed to the pandemic, were crucial in the court's decision. The court recognized the petitioner's efforts to rectify the GST registration issue and the compassionate view taken by the Appellate Authority. The economic repercussions of the pandemic on small businesses, like the petitioner's, were highlighted to justify setting aside the blacklisting decision.

4. Fairness and Reasonableness: The court emphasized the need for the respondent to act fairly and reasonably, especially towards small-scale businesses. It noted that punitive actions like blacklisting could have severe consequences for a sole proprietorship's reputation and survival. The court directed the respondent to reconsider the blacklisting decision, considering the petitioner's circumstances and the compassionate approach taken by the GST Department.

In conclusion, the court set aside the blacklisting order, urging the respondent to re-evaluate the decision in light of the petitioner's situation and the economic challenges faced post-COVID-19. The judgment highlighted the importance of fairness, reasonableness, and compassion in dealing with small businesses struggling in the current economic climate.