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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 ..... stipulation contained in the show cause notice that action of blacklisting is proposed? If yes, is it permissible to discern it from the reading of impugned show cause notice, even when not specifically mentioned, that the appellant understood that it was about the proposed action of blacklisting that could be taken against him? 3) The factual narration, leading to the impugned action viz. of blacklisting the appellant firm does not require much elaboration. Stating the following events would serve the purpose of addressing the issue at hand. 4) The appellant, which is a partnership firm, was awarded the contract vide letter of award dated 1.9.2011 for providing security services in Shri Dada Dev Matri Avum Shishu Chiktsalaya, Dabri, New Delhi (hereinafter referred to as the 'hospital). This hospital is under the administration of Respondent No. 1 viz. Government of NCT of Delhi. The contract was for a period of 1 year i.e. from 2.9.2011 to 1.9.2012. The payment was required to be made contractually to the appellant on monthly basis. Though the contract was upto 1.9.2012, the appellant continued to provide services even thereafter. The case of the appellant is that it has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nimum wages and extend the statutory benefits and abide by the labour laws, but also failed to provide satisfactory services and failed to submit the required information/ document, as and when called for and also being pre-requisite under the tender terms and conditions, and have rendered this hospital at the risk by deputing the less security personnels that too without prior intimation of the credentials of the deployed staff and police verification, as such liable to be levied the cost accordingly. Therefore, you are directed to show case within 7 days of the receipt of this notice, as to why the action as mentioned above may not be taken against the firm, beside other actions as deemed fit by the competent authority. (emphasis supplied)". 8) The appellant furnished detailed reply dated 25.4.2013 to the aforesaid show cause notice taking the position that the appellant firm had adhered to and complied with all the obligations contained in the contract signed between the parties and it was the respondent who had defaulted in making the payment to the appellant inspite of various reminders issued. It was thus maintained that there was no violation of the terms and conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) A penalty of blacklisting the firm M/s Gorkha Security for a period of 4 years from the date of this order, from participating the tenders in any of the department of Delhi Government/ Central Government/ Autonomous Body under the Government. (v) Since, the firm has made the payment of wages @ Rs. 4,000/- per month per person which is less than the prescribed rates of minimum wages, and submitted no proof of payment of wages, EPF and ESI etc. in spite of opportunities given over the years, hence, it is ordered to release the payment only @ Rs. 4,000/- per month per person plus applicable taxes after deducting the penalty imposed at 1 & 2 above and withhold rest of the payment of bills to the extent of amount over and above Rs. 4,000/- per month per person, till the payment of full wages to the employees and submissions of the proof of disbursing minimum prescribed wages and depositing the EPF and ESI contributions in respect of each deployed employees who have actually deployed and worked in this hospital duly verified by the authorities concerned. 12) The appellant preferred an appeal dated 23.9.2013, against the aforesaid order, to the Principal Secretary (H&FW). Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess terms of the contract between the parties, it was not necessary for the respondent to specifically refer to the proposed blacklisting in the show cause notice issued to the appellant. The purpose of show cause notice is primarily to enable the noticee to meet the grounds on which an action is proposed against it and such grounds were fully detailed in the show cause notice issued to the appellant. In fact, even prior to issue of the show cause notice, the appellant was aware of the issues between the parties through the notice dated 4.8.2012. It would, therefore, be difficult to say that the appellant did not know what case it had to meet while responding to the show-cause notice. In any case, the appellant did respond to the show cause notice without claiming the ambiguity in the said notice and, therefore, it is not open to it to assail the impugned order on the ground that there was no specific reference to the proposed blacklisting of in the said notice". 14) Not satisfied with the aforesaid outcome, the appellant preferred Letters Patent Appeal before the Division Bench of the High Court. However, it has met the same fate in as much as the High Court has dismissed the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acquisition, holding and disposal of property and the making of contracts for any purpose. The State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality. 20. Blacklisting has the effect of preventing a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y opinion on the correctness of otherwise of the allegations made against the appellant. The appeal is thus disposed of." Recently, in the case of Patel Engineering Ltd. v. Union of India and Anr.; (2012) 11 SCC 257 speaking through one of us (Jasti Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner: "13. The concept of "blacklisting" is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. as under: "20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains." 14. The nature of the authority of the State to blacklist the persons was considered by this Court in the abovementioned case and took note of the constitutional provision (Article 298), which authorises both the Union of India and the States to make contracts for any purpose and to carry on any trade or business. It also authorises the acquisition, holding and disposal of property. This Court also took note of the fact that the right to make a contract includes the right not to make a contract. By definition, the said ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/ breaches complained of are not satisfactorily explained. When it comes to black listing, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. 20) The High Court has simply stated that the purpose of show cause notice is primarily to enable the noticee to meet the grounds on which the action is proposed against him. No doubt, the High Court is justified to this extent. However, it is equally important to mention as to what would be the consequence if the noticee does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show cause notice should meet the following two requirements viz: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is beyond 2 weeks then: a) To cancel the contract and withhold the agreement. In that event, Department has right to get the job carried out from other contractor at the cost of the defaulter contractor; b) To black list the defaulter contractor for a period of 4 years; c) To forfeit his earnest money/ deposits, if so warranted. 24) In the present case, it is obvious that action is taken as provided in sub clause 2(ii). Under this clause, as is clear from the reading thereof, the Department had a right to cancel the contract and withhold the agreement. That has been done. The Department has also a right to get the job which was to be carried out by the defaulting contractor, to be carried out from other contractor(s). In such an event, the Department also has a right to recover the difference from the defaulting contractor. This clause, no doubt, gives further right to the Department to blacklist the contractor for a period of 4 years and also forfeit his earnest money/ security deposit, if so required. 25) It is thus apparent that this sub-clause provides for various actions which can be taken and penalties which can be imposed by the Department. In such a situation whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deemed fit by the competent authority". It follows from the above that main action which the respondents wanted to take was to levy the cost. No doubt, notice further mentions that competent authority could take other actions as deemed fit. However, that may not fulfil the requirement of putting the defaulter to the notice that action of blacklisting was also in the mind of the competent authority. Mere existence of Clause 27 in the agreement entered into between the parties, would not suffice the aforesaid mandatory requirement by vaguely mentioning other "actions as deemed fit". 28) As already pointed out above in so far as penalty of black listing and forfeiture of earnest money/ security deposit is concerned it can be imposed only, "if so warranted". Therefore, without any specific stipulation in this behalf, respondent could not have imposed the penalty of black listing. 29) No doubt, rules of natural justice are not embodied rules nor can they be lifted to the position of fundamental rights. However, their aim is to secure justice and to prevent miscarriage of justice. It is now well established proposition of law that unless a statutory provision either specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maninder Singh, learned ASG appearing for the respondent, that even if it is accepted that show cause notice should have contained the proposed action of blacklisting, no prejudice was caused to the appellant in as much as all necessary details mentioning defaults/ prejudices committed by the appellant were given in the show cause notice and the appellant had even given its reply thereto. According to him, even if the action of blacklisting was not proposed in the show cause notice, reply of the appellant would have remained the same. On this premise, the learned ASG has argued that there is no prejudice caused to the appellant by non mentioning of the proposed action of blacklisting. He argued that unless the appellant was able to show that non mentioning of blacklisting as the proposed penalty has caused prejudice and has resulted in miscarriage of justice, the impugned action cannot be nullified. For this proposition he referred to the judgment of this Court in Haryana Financial Corporation and Anr. v. Kailash Chandra Ahuja; (2008) 9 SCC 31. "21. From the ratio laid down in B. Karunakar1 it is explicitly clear that the doctrine of natural justice requires supply of a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the present case, it becomes difficult to accept the argument of the learned ASG. In the first instance, we may point out that no such case was set up by the respondents that by omitting to state the proposed action of blacklisting, the appellant in the show cause notice has not caused any prejudice to the appellant. Moreover, had the action of black listing being specifically proposed in the show cause notice, the appellant could have mentioned as to why such extreme penalty is not justified. It could have come out with extenuating circumstances defending such an action even if the defaults were there and the Department was not satisfied with the explanation qua the defaults. It could have even pleaded with the Department not to blacklist the appellant or do it for a lesser period in case the Department still wanted to black list the appellant. Therefore, it is not at all acceptable that non 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. 34) For the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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