Source: Supreme Court

Why in News?

A bench of Justice BR Gavai, Justice Sanjay Karol and Justice KV Viswanathan held that blacklisting results in civil death to a party.

• The Supreme Court held this in the case of The Blue Dreamz Advertising v. Kolkata Municipal Corporation.

What is the Background of The Blue Dreamz Advertising v. Kolkata Municipal Corporation Case?

• The Respondent no. 1 (Kolkata Municipal Corporation) invited bids for the allotment of contract for display of advertisement on Street Hoardings, Bus Passenger shelter and Kiosks within its jurisdiction.
• By an award dated 28^th May 2014 the appellant was notified as the successful bidder.
• A show cause notice was issued asking why the appellant’s allotment should not be terminated as dues along with interest have not been cleared.
• Pursuant to this a notice was published in the English Daily “The Times of India” that the appellant has been blacklisted.
• It was the case of the appellant that the decision to blacklist without recourse to arbitration proceeding is illegal.
• By an order dated 2^nd March 2016, the Corporation debarred the appellant from participating in any tender for five years or till the date of exoneration of the company from the allegation of negligent performance/action and also of nonpayment of huge amount or till the date of payment of entire dues with interest under the direction of any authority/forum/court, whichever is later.
• A writ petition was filed challenging the above order. The matter was further carried out in appeal.
• The High Court held that since the appellant was given a hearing and there were sufficient grounds for debarring the appellant.
• The Appellant was before the Supreme Court against this order.
• The issue for consideration before the Court was whether the order of the Corporation dated ^2nd March 2016 debarring the appellant for five years is valid and justified in law?

What were the Court’s Observations?

• The Court in this case held that debarment as a remedy should be invoked only in those cases where there is harm or potential harm for public interest.
• It should be done only in those cases where debarment as a penalty alone will protect the public interest and deter the person from repeating his actions which have the tendency to put public interest in jeopardy.
• In case of an ordinary breach of contract under Indian Contract Act, 1872 (ICA) where explanation offered by the person raises a bona fide dispute, blacklisting/debarment as a penalty ought not to be resorted to.

What is Blacklisting?

• Blacklist as per the Encyclopedia of the Laws of England means “ Blacklist is a list of persons or firms against whom its complier would warn the public, or some section of the public; a list of persons unworthy of credit, or with whom it is not advisable to make contracts.”
• A blacklist order results in civil consequences and amounts affecting the business prospects of a person.
• No authority should act in an arbitrary manner to put a person on blacklist and must act in a fair manner.

When is Blacklisting Justified?

• Blacklisting is justified in following situations:
  • When the proprietor is convicted by a Court of Law.
  • If there is a strong consideration that the person is guilty of malpractices such as bribery, corruption, fraud.
  • If the firm employs a government servant dismissed or removed on account of corruption.
  • Where the person refused to commence the work despite repeated orders.
  • There was a failure of the contractor to adhere to the time schedule of 25 days and there was no suitable reply to the show cause notice. The Court held that the order blacklisting was justified and there was no failure of natural justice.
    • This was held in the case of B.S. Construction Company v. Commissioner of MCD (2008).
  • When a contractor was blacklisted on the ground that he sub-let the work without seeking approval the Court held that the order of blacklisting was not justified.
    • It was held that the Government misinterpreted the clauses of the contract, and the order of blacklisting was bad in law.
    • This was held in the case of PT Samber Mitra Jaya v. NHAI (2003).

What are the Major Case Laws on Blacklisting?

• Erusian Equipment & Chemicals Ltd v. State of West Bengal & Anr. (1975):
  • 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.
  • The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction.
• Mr. B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. (2006):
  • The Court held that blacklisting would have a disastrous effect on a tenderer.
  • When a tenderer is declared to be a defaulter, he may not get any contract at all and it may have to wind up its business.
  • When a demand is made and the person concerned raises a bona fide dispute in this regard so long as the dispute is not resolved he may not be declared as a defaulter.
• Kulja Industries Ltd v. Chief General Manager Western Telecom Project BSNL & Ors. (2014):
  • A 2- judge bench in this case held that the power to blacklist a contractor is inherent and there is no need of conferment of such power by the statute.
  • Also, the Court held that the decision to blacklist a contractor has a serious consequence and can be scrutinized by the High Court.
  • Further, the decision has to be examined on the principles of natural justice and doctrine of proportionality.
  • The Supreme Court in this case relied on guidelines prescribed by the US Federal Government for blacklisting (debarment under US law). Supreme Court also relied on the guidelines for factors that may influence debarring official’s decision.