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TMI Blog2025 (1) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... n transferred to a new management. Earlier the petitioner was blacklisted vide order dated 6th March, 2023 and debarred from participating in any tender process for any work of the Government of Tripura. This was the subject matter of challenge in WP(C) No. 271 of 2023 wherein this court vide order dated 29th May, 2023 quashed the blacklisting order dated 6th March, 2023. Thereafter, the impugned order of blacklisting has been passed. 3. The genesis of the dispute is the allotment of work for providing consultancy services for the Geographic Information System (GIS) based Master Plan Formulation for 20 cities in the State of Tripura under Tripura Town and Country Planning Act, 1975 as per the Request for Proposal issued on 23rd August, 2017 by the respondent. 4. As per the averments of the petitioner, the work was awarded after opening of price bids vide letter of acceptance dated 29th November, 2018 for a sum of Rs. 4,77,90,000/- (Rupees Four Crore Seventy Seven Lakh and Ninety Thousand only). The petitioner furnished a Performance Bank Guarantee of Rs. 95,58,000/- (Rupees Ninety Five Lakhs and Fifty Eight thousand only) on 14th December, 2018. Parties entered into an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely and also the timeline for the period on 25th August, 2020. 7. On 24th December, 2020 the respondents granted time extension for completion of the project work till 30th June, 2021. Petitioner again sought extension of timeline vide letter dated 19th July, 2021. He submitted GIS data for Agartala & Khowai to the respondents on 4th August, 2021. The respondents further granted extension of time for completion of project till 31st December, 2021 vide letter dated 1st September, 2021. On 8th October, 2021 the petitioner was admitted into Corporate Insolvency Resolution Process (CIRP) by the National Company Law Tribunal, Kolkata Bench in CP (IB No. 295/KB/2021) under the Insolvency and Bankruptcy Code, 2016. 8. Further, correspondences ensued between the parties and the respondents provided time extension till 22nd July, 2022 vide letter dated 21st January, 2022. On 1st August, 2022 the respondents issued a communication to the petitioner granting extension of time regarding formulation of master plan for Agartala and 19 towns of Tripura up to 30th June, 2023. Thereafter, the Tripura Urban Planning and Development Authority (TUDA) vide letter dated 22nd September, 2022 expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it is apposite to quote the ratio rendered by the Apex Court in case of Gorkha Security Services versus Government (NCT of Delhi) and others reported in (2014) 9 SCC 105, paragraphs 21 and 22 of which are reproduced hereunder : "21. The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show-cause notice is to make the notice understand the precise case set up against him which he has to meet. This would 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 blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. 22. The High Court has simply stated that the purpose of show-cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the adjudication on the subject may involve determination on disputed questions of fact and evidence as may be required to be adduced by the rival parties. 13. Thereafter, vide letter dated 6th June, 2023 the petitioner invoked the arbitration clause No. 8.2 of the agreement letter dated 7th January, 2019 for reference of the dispute relating to invocation of Performance Bank Guarantee by the respondents of Rs. 95,58,000/- (Rupees Ninety Five Lakhs and Fifty Eight thousand only). 14. The respondents on 10th July, 2023 issued another show cause notice for blacklisting the petitioner for a period of three years. The petitioner submitted its reply vide letter dated 25th July, 2023 and requested for withdrawal of the show cause notice. Thereafter on 11th August, 2023 the learned NCLT, Kolkata approved the resolution plan of the National Asset Reconstruction Company Ltd. (hereinafter referred to as "NARCL") of the successful resolution applicant of the petitioner under Section 31 of the IBC. The respondents replied to the letter dated 25th July, 2023 of the petitioner. Further replies were given by the petitioner on 17th August, 2023 reiterating its stand and refuting the allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under Section 31, if the resolution plan results in the change in the management and control of the corporate debtor to a person who was not a promoter or in the management and control of the corporate debtor. The object behind introducing Section 32A in the Code of 2016 has been referred to in the case of Manish Kumar Vs. Union of India & Anr., (2021) 5 SCC 1 paragraphs 317 to 329. 17.1. It is submitted that sub-section (2) of Section 32A declares a bar against taking any action against the property of the corporate debtor. Section 3 (27) of the Code defines "property" as including money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property. Therefore, it is the submission of the petitioner that property of the corporate debtor would include its goodwill and reputation in the play and that any decision against such property of the corporate debtor will be barred. Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assailed the order of blacklisting based on the doctrine of proportionality. It has been argued that an order of blacklisting has civil consequences and operates to the prejudice of a commercial person not only in praesenti but also puts a taint which attaches far beyond and may well spell the death knell of the organization/Institution for all times to come. Reliance has been placed on the case of Vetindia pharmaceuticals Ltd. Vs. State of Uttar Pradesh & Anr, (2021) 1 SCC 804, in particular paragraph 12 thereof, to submit that a simplicitor breach of contract cannot justify an order of blacklisting. Reference has also been made to the case of JP Iscon Pvt. Ltd. Vs. State of Gujarat MANU/GJ/1647/2021, paragraph 95 to 99, where the case of Erusian Equipment and Chemicals Ltd. Vs. State of West Bengal & Anr., (1975) 1 SCC 70 has been also relied upon. The Gujarat High Court has held that if a contractor is to be visited with the punitive measure of blacklisting on account of an allegation that he has committed a breach of a contract, the nature of his conduct must be so deviant or aberrant so as to warrant such a punitive measure. A mere allegation of breach of contractual obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... listing is also bad as there is no finding that the petitioner's conduct was so deviant that it warranted the imposition of the penalty of blacklisting of the petitioner. Further, the respondent proceeded to pass the order of blacklisting notwithstanding the fact that the contract itself provided for furnishing of performance security by the petitioner, which the respondent had already invoked and encashed. 22. In the aforesaid factual background and legal submissions, learned senior counsel Mr. Jishnu Saha has prayed that the order of blacklisting deserves to be quashed as otherwise it would defeat the very object of the revival of the company under the resolution plan approved by the NCLT, Kolkata under Section 31 of the I&B Code, 2016. The order also suffers on grounds of proportionality and violation of principles of natural justice as the grounds raised in the petitioner's reply have not been dealt with. 23. The State has been represented by Mr. SS Dey, learned Advocate General. It is contended that the order of blacklisting is liable to be upheld on the following grounds: (i) The agreement was signed between the parties on 7th January, 2019 with full consent of the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical professional which attracted Clause No.3.6 of General Conditions of Contract. (vi) The petitioner through its letter dated 17.11.2022 expressed their inability to carry out the project which is not a formal way to terminate the agreement from their part. The petitioner cannot simply walk away from the execution of the work putting the respondent in uncertainty. (vii) The writ petitioner company made false statement and did not disclose the fact that CIRP Order was passed on 08.10.2021. Rather, on 17.11.2022 they expressed their inability to further carry on the work after more than 1(one) year from the date of passing of CIRP Order dated 08.10.2021, which showed that the petitioner did not have the intention to execute the work. This hampered the vision and work program of the Government of Tripura to utilize the proposed master plan for different government works for the benefit of the people. 24. Therefore, failure of the petitioner to execute the work and its unprofessional conduct made it liable to be blacklisted and debarred for a period of three years. The impugned order of blacklisting has been passed after a proper show cause asking the writ petitioner as to why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 226 and 227 should be extremely circumspect in interfering with proceedings/orders passed under the Arbitration and Conciliation Act, 1996 and it should interfere only in cases where the orders are patently lacking in inherent jurisdiction. Therefore, once the Arbitral Tribunal has refused to interfere in the blacklisting order this court should not exercise its extra ordinary jurisdiction under Article 226 of the constitution of India. 29. The respondents have also placed reliance on the case of Sukanya Holdings (P) Ltd. Vs. Jayesh H Pandya & Others, (2003) 5 SCC 531, para 16 thereof in order to submit that the splitting of the cause of action on the part of the petitioner by approaching this court against the order of blacklisting is not proper. Reliance is also placed on the case of Rashtriya Ispat Nigam limited & Anr Vs. M/S Verma Transport Company, (2006) 7 SCC 275 para 42 thereof and Sukanya Holdings (P) Ltd.(supra), particularly paragraphs 16 & 17 in support of their submission that the power to blacklist is independent of the power to recover dues. Mere pendency of such proceedings would not bar the exercise of power to blacklist. Permitting such a challenge to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude or protect the petitioner from the civil consequences arising from the breach of promise resulting in delay in execution of the work despite several extensions by the petitioner. It is the case of the respondents that while the I&B Code, 2016 provides for revival of the company and waiver from civil liabilities and also prosecution under Section 32A of the I&B Code, the legislature has consciously not provided for waiver of the imposition of penalty of blacklisting or debarment upon an agency like the petitioner for gross mis-conduct and also suppression of facts relating to the NCLT proceedings before the respondents. The order dated 8th October, 2021 passed by the learned NCLT, Kolkata whereby the petitioner was admitted to corporate insolvency resolution process was not even brought to the notice of the respondents. 34. After the earlier order of blacklisting was set aside by this court on the ground of violation of principles of natural justice, the respondents have complied with the requirements of a proper show cause notice containing the ingredients of charge or misconduct and also the proposed penalty upon the petitioner and only after proper consideration of the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect to a claim, which is not part of the resolution plan. It has referred to the decision of the Apex Court in Ghanashyam Mishra & Sons Pvt. Ltd (supra) wherein it has been held that once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Govt. any State Govt. or any local authority, guarantors and other stakeholders. The Apex Court also held that all dues including the statutory dues owed to the Central Govt. any State govt. or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued. 39. However, waiver sought in relation to guarantors would not be allowed to operate in view of the judgment of the Apex Court in Lalit Kumar Jain Vs. Union on India & Ors., 2021 SCC OnLine SC 396 as sanction of a resolution plan and finality imparted to it by section 31 does not per se oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature? (iii) As to whether after approval of resolution plan by the adjudicating authority a creditor including the Central Government, State Government or any local authority is entitled to initiate any proceedings for recovery of any of the dues from the corporate debtor, which are not a part of the resolution plan approved by the adjudicating authority?" 43. The answer to the aforesaid questions has been provided in paragraph 102 which is extracted hereinunder: "102. In the result, we answer the questions framed by us as under: 102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable." 45. It is not in dispute that upon approval of the resolution plan by the NCLT vide order dated 11th August, 2023 (Annexure-2 to the writ petition) the erstwhile management of the company has been replaced by a new management. The entire allegation of the respondents is directed against the delay in execution of work on the part of the company represented through its erstwhile management. A Company, being a juristic person, is managed by a set of promoters/directors. In this context, it is also necessary to look into the provision of Section 32-A of the Code which provides protection from criminal prosecution to the corporate debtor. 46. Section 32A provides for protection from liability of prior offences of a corporate debtor, i.e. offences committed prior to the commencement of the corporate insolvency resolution plan, and the corporate debtor shall not be prosecuted for such an offence from the date t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty under such law as may be applicable to the corporate debtor. Sub-clause (ii) of this sub-section further provides that nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. 50. Section 32-A of the I&B Code was introduced w.e.f. 28th December, 2019 by Amendment Act 1 of 2020. The provisions of Section 31 and Section 32-A when read together in the light of the opinion of the apex Court rendered in the case of Ghanashyam Mishra & Sons Pvt. Ltd (supra) and in the case of Swiss Ribbons (P) Ltd. (supra) do give an insight that the entire purpose of the I&B Code is to ensure the revival of the corporate debtor upon approval of the resolution plan by the adjudicating authority in order to ensure a clean slate to the new management of the corporate debtor so that it leads to value maximization of the assets of the company and obviate lower recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , paras 27-28) "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme- workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any business on account of the scar and stigma operating due to blacklisting and debarment imposed in respect of a contract which could not been executed allegedly due to the wrong doings or negligence or deliberate misconduct on the part of the erstwhile management of the company. 53. Apart from wrecking vengeance on the corporate debtor operating with a new management which is not responsible for the past misdeeds of the erstwhile management, such an order of blacklisting would not serve any fruitful purpose. Rather it would defeat the corporate debtor from reviving itself after approval of the resolution plan by entering into new business. It is commonly known that nowadays in all such tender documents floated by the state or its instrumentalities or even by private parties, the bidders have to disclose their past history including whether they have been blacklisted or debarred earlier. In such circumstances, the considerations of the bids by the revived company would be vitiated, if its past continues to haunt it. 54. The petitioners have assailed the impugned order of blacklisting on the doctrine of proportionality as well. Relying upon the recent judgment of the apex cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Apex Court in Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam limited & Ors., (2014) 14 SCC 731 has explained that "debarment" is an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. It has also been held "debarment" is never permanent. It would invariably depend upon the nature of the offence committed by the erring contractor. In the facts and circumstances of the case discussed above such disciplining of the revived company for the past deeds of its erstwhile management would be unwarranted and not serve the purpose and the objectives of the I&B Code. 59. The issue whether the petitioner had duly informed the respondents about its admission in the CIRP or not would not in the ultimate analysis make a difference on propriety of imposing the penalty of blacklisting and debarment once the resolution plan has been approved by the learned NCLT on 11th August, 2023 and the new management has taken over the company to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uit pending as such in relation to the dispute between the parties arising out of the agreement though an arbitration proceeding has been commenced. However, the order of blacklisting was not an issue before the learned Arbitral Tribunal. Even otherwise, the order of blacklisting passed by the State or its instrumentality could be amenable to the writ jurisdiction. Therefore, reliance on the said decision is misplaced. 64. The respondents have taken a stand that challenge to the order of blacklisting in an independent proceeding would lead multiplicity of proceedings and conflicting views which are best avoided. However, as it appears that the learned Arbitral Tribunal has not entertained the plea against the order of blacklisting as no such claim was made before it. In such a case, refusal to entertain a challenge to the order of blacklisting by this Court under Article 226 of the Constitution of India would amount to denying a remedy available in law. 65. Though, the learned counsel for the respondents have sought to distinguish the judgments relied upon by the petitioner, such as Ghanashyam Mishra & Sons Pvt. Ltd. (supra) but such a plea is not tenable for the reasons recorded ..... 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