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TMI Blog2014 (8) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioning of proposed blacklisting in the show cause notice has not caused any prejudice to the appellant. This apart, the extreme nature of such a harsh penalty like blacklisting with severe consequences, would itself amount to causing prejudice to the appellant. We are of the view that the impugned judgment of the High Court does not decide the issue in correct prospective. The impugned order dated 11.9.2013 passed by the respondents blacklisting the appellant without giving the appellant notice thereto, is contrary to the principles of natural justice as it was not specifically proposed and, therefore, there was no show cause notice given to this effect before taking action of blacklisting against the appellant. We, therefore, set aside and quash the impugned action of blacklisting the appellant. The appeals are allowed to this extent. - CIVIL APPEAL NOS. 7167-7168 OF 2014 [Arising out of Special Leave Petition (Civil) No. 38898- 38899 of 2013) - - - Dated:- 4-8-2014 - CHELAMESWAR,JASTI, J. J U D G M E N T A.K. SIKRI, J. 1) Leave granted. 2) Present appeals raise an interesting question of law pertaining to the form and content of show cause notice, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EPF/ESIC and service tax etc. This communication further mentioned that inspite of the lapse of a long period the appellant had failed to submit the requisite documents/ information and was not making full payment of minimum prescribed wages to its workmen/ security guards nor was providing the statutory benefits like EPF/ ESIC. Certain other deficiencies in the performance of the contract were also alleged therein. The appellant, in the first instance, sent the letter dated 7.8.2012 in response to the aforesaid notice, stating that it had obtained the EPF and ESIC numbers in respect of deployed security personnel and deposited their contributions towards EPF ESIC with the concerned authorities. Proof in support of this was also furnished in the form of photocopies of consolidated challans with the bills. The appellant specifically maintained that it had made payment to the workers as per Minimum Wages Act. 6) Detailed reply to the notice dated 4.8.2012 was given by the appellant on 17.8.2012 wherein photocopies of bio-data in respect of deployed 32 security personnel alongwith police verification report as well as list of security personnel along with their date of birth, ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the statutory obligations and submitting documents with the department. The appellant again insisted that respondents who were not releasing the payment and instead threatening the appellant to terminate the contract. 10) First communication which was received, thereafter, by the appellant was letter dated 30.7.2013 informing the appellant that the contract of the appellant would stand terminated from 31.8.2013 (A.N.) and the appellant was directed to wind up its work and hand over the charge to the in- charge outsourcing for further arrangements. The appellant took exception to this move on the part of the respondent vide its letter dated 31.7.2013 alleging that the contract was sought to be terminated without assigning any valid reasons which was unjustified, that too when no payment was made for the services rendered by the appellant. By another letter dated 14.8.2013, the appellant repeated its request for release of payment. 11) At this juncture impugned order dated 11.9.2013 was passed by the respondents wherein the respondents maintained that the appellant had violated the terms and conditions of the Contract Labour Laws and had also not complied with certain othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make a representation in this regard; (ii) No opportunity of personal hearing was given to the appellant before passing the impugned order; and (iii) There was no ground for blacklisting the appellant since no term of the agreement was breached by it. 13) The learned Single Judge of the High Court did not find any merit in any of the aforesaid grounds and dismissed the writ petition by reason of the judgment dated 25.10.2013. It was held that the State had the power to blacklist a person, which was 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., as held in Patel Engineering Ltd. v. Union of India; (2012) 11 SCC 257. In this judgment, the Supreme Court had also taken the view that there is no inviolable rule that a personal hearing has to be given to the affected party before taking a decision. Referring to the terms and conditions of the contract, as contained in the NIT, which form part of the agreement, and particularly Clause 27 (a) (ii), the Court noticed that there was specific power reserved by the respondent to black list the defaulting contractor for a period of 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o presume that such an action could be taken even though not specifically spelled out in the show cause notice? 16) We have heard the learned Counsel for the parties appearing on the either side on the aforesaid aspects, in detail. Before we proceed to answer the question we may restate and highlight the legal position about which there is neither any dispute, nor can there be as there is no escape from the below stated legal principle: Necessity of serving show cause notice as a requisite of the Principles of Natural Justice: 17) It is a common case of the parties that the blacklisting has to be preceded by a show cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting many civil and/ or evil consequences follow. It is described as civil death of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in Government Tenders which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 the aforesaid principle was reiterated in the following manner:- 4. Indisputably, no notice had been given to the appellant of the proposal of blacklisting the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. Insofar as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the principles of natural justice. It has to be realised that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order. In that view of the matter, the last portion of the order insofar as it directs blacklisting of the appellant in respect of future contracts, cannot be sustained in law. In the premises, that portion of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionship with the State would be to deprive such person to be treated equally with those, who are also engaged in similar activity. 15. It follows from the above judgment in Erusian Equipment case that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. 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- thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors. 18) Thus, there is no dispute about the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion with reference to the instant case: 21) With the aforesaid statement of law, now let us proceed with the present case scenario. 22) It would be necessary to take note of the relevant portion of clause 27 of the NIT under which umbrage is taken by the respondents to justify their action, and even appealed to the High Court. Clause 27 (a) (c) (a) reads as under: a.... (sic) In case the contractor fails to commence/ execute the work as stipulated in the agreement or unsatisfactory performance or does not meet the statutory requirements of the contract, Department reserves the right to impose the penalty as detailed below:- (i) 20% of cost of order/ agreement per week, upto two weeks' delays. (ii) After two weeks delay Principal Employer reserves the right to cancel the contract and withhold the agreement and get this job carried out preferably from other contractor(s) registered with DGR and then from open market or with other agencies if DGR registered agencies are not in a position to provide such Contractor(s). The difference if any will be recovered from the defaulter contractor and also shall be blacklisted for a period of 4 years from participating in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty of black listing or forfeiture of earnest money/ security deposit in all cases, even if there is such a power. It is left to the Department to inflict any such penalty or not depending upon as to whether circumstances in a particular case warrant such a penalty. There has to be due application of mind by the authority competent to impose the penalty, on these aspects. Therefore, merely because of the reason that clause 27 empowers the Department to impose such a penalty, would not mean that this specific penalty can be imposed, without putting the defaulting contractor to notice to this effect. 26) We are, therefore, of the opinion that it was incumbent on the part of the Department to state in the show cause notice that the competent authority intended to impose such a penalty of blacklisting, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same. However, we may also add that even if it is not mentioned specifically but from the reading of the show cause notice, it can be clearly inferred that such an action was proposed, that would fulfill this requirement. In the present case, however, reading of the show cause notice d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dies were understood and applied from the perspective of social efficaciousness, the problem raised in this appeal would not have ended the erroneous way it did in the High Court. Judges must never forget that every law has a social purpose and engineering process without appreciating which justice to the law cannot be done. Here, the socio-legal situation we are faced with is a colliery, an explosive, an accident, luckily not lethal, caused by violation of a regulation and consequential cancellation of the certificate of the delinquent shot-firer, eventually quashed by the High Court, for processual solecisms, by a writ of certiorari. Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical nor fanatical but should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and ineffective. It is for the delinquent employee to plead and prove that non-supply of such report had caused prejudice and resulted in miscarriage of justice. If he is unable to satisfy the court on that point, the order of punishment cannot automatically be set aside. 31. At the same time, however, effect of violation of the rule of audi alteram partem has to be considered. Even if hearing is not afforded to the person who is sought to be affected or penalised, can it not be argued that notice would have served no purpose or hearing could not have made difference or the person could not have offered any defence whatsoever . In this connection, it is interesting to note that under the English law, it was held few years before that non-compliance with principles of natural justice would make the order null and void and no further inquiry was necessary. 36. The recent trend, however, is of prejudice . Even in those cases where procedural requirements have not been complied with, the action has not been held ipso facto illegal, unlawful or void unless it is shown that non-observance had prejudicially affected the applicant. 44. From the aforesaid decisions, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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