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2014 (8) TMI 1081 - SUPREME COURT

2014 (8) TMI 1081 - SUPREME COURT - 2014 AIR 3371, 2014 (9) SCC 105, 2014 (9) JT 165, 2014 (9) SCALE 148 - Necessity of serving show cause notice - Form and content of show cause notice required to be served, before deciding as to whether the noticee is to be blacklisted or not - Held that:- When it comes to the action of blacklisting which is termed as 'Civil Death' it would be difficult to accept the proposition that without even putting the noticee to such a contemplated action and giving him .....

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e appellant could have mentioned as to why such extreme penalty is not justified. 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. - We are of the view that the impugned judgment of the High Court does not decide the issue in correct prospect .....

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7-7168 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 is required to be served, before deciding as to whether the noticee is to be blacklisted or not. We may point out at the outset that there is no quarrel between the parties on the proposition that it is .....

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ion 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 .....

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hough 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 been given any payment after the expiry of the contract period though it worked till 31.7.2013. 5) It appears that the respondents had issued a communication dated 4.8.2012, in continuation of their earlier letter dated 17.10.2011, requiring the appellant to submit the valid EPF/ ESIC certificate, list of persons deployed along with copies of their educa .....

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its 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 .....

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ed 4.8.2012 were also addressed. 7) The respondent authorities, however, were not satisfied with the reply which resulted in serving of the show cause notice dated 6.2.2013 upon the appellant detailing various lapses, which the appellant had allegedly committed. Since the entire dispute revolves around the nature of action that was stipulated therein and was proposed to be taken, we would like to reproduce that part of the show cause notice in verbatim: And whereas, by the above act and omission .....

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n, 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 i .....

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aforesaid reply, respondents sent another communication dated 30.5.2013 calling upon the appellant to submit certain documents. This was adverted to by the appellant in the form of reply dated 8.6.2013 reiterating the position taken earlier viz. the appellants were adhering to 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. .....

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ut 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 other requirements stipulated in .....

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forfeiture of performance guarantees amounting to ₹ 3,70,000/- (Rupees Three Lac Seventy Thousand only) submitted at the commencement of contract. (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 @ ₹ 4,000/- per month per person which is .....

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sions 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). However, it did not evoke any response from the Secretary and in these circumstances the appellant approached the High Court of Delhi by .....

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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 purpos .....

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t the defaulting contractor for a period of 4 years. In view of that power it held that the appellant was rightly blacklisted. In so far as argument of the appellant that show cause notice did not specifically refer to the proposed action of black listing, that plea was rejected in the following terms: It would thus be seen that the contract between the parties specifically empowered the respondents to blacklist the appellant firm. Therefore, when the show cause notice received by the appellant .....

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oticee 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 caus .....

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ing the view taken by the learned Single Judge. 15) It is in this backdrop, question which has arisen for our consideration in the present case is as to whether action of blacklisting could be taken without specifically proposing/ contemplating such an action in the show cause notice? To put it otherwise, whether the power of blacklisting contained in Clause 27 of the NIT, was sufficient for the appellant to be on his guards, and to presume that such an action could be taken even though not spec .....

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arties 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 o .....

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in the mind of the authority contemplating blacklisting of such a person. This is clear from the reading of Para Nos. 12 and 20 of the said judgment. Necessitating this requirement, the court observed thus: 12. Under Article 298 of the Constitution the executive power of the Union and the State shall extend to the carrying on of any trade and to 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 la .....

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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. Blacklis .....

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.;(1989) 1 SCC 229 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 .....

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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 directing that the appellant be placed in the blacklist in respect of future contracts under the Collector is set aside. So far as the cancellation of the bid of the appellant is concerned, that is not affected. This order will, however, not prevent the State Government or the appropria .....

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nst 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 a .....

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of the fact that the right to make a contract includes the right not to make a contract. By definition, the said right is inherent in every person capable of entering into a contract. However, such a right either to enter or not to enter into a contract with any person is subject to a constitutional obligation to obey the command of Article 14. Though nobody has any right to compel the State to enter into a contract, everybody has a right to be treated equally when the State seeks to establish .....

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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 an .....

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earing. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engineering (supra). Contents of Show Cause Notice 19) 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 noticee understand the precise case set up against him which he has to mee .....

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lack 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 .....

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ntioned in the show cause notice but it can be clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement. Discussion 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 2 .....

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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 such type of tender and his earnest money/ security deposit may also be forfeited, if so warranted. 23) It is clear from the reading of the aforesaid clause .....

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0% of cost of orders/ agreement per week, upto delay of 2 weeks. (ii) If the delay 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 .....

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tractor 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 which action the Department proposes to take, need to be specifically stated in the show cause notice. It becomes all the more important when the action of black listing and/ or forfeiture of earnest money/ security deposit is to b .....

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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 s .....

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say so for the reasons that are recorded hereinafter. 27) In the instant case, no doubt show cause notice dated 6.2.2013 was served upon the appellant. Relevant portion thereof has already been extracted above. This show cause notice is conspicuously silent about the blacklisting action. On the contrary, after stating in detail the nature of alleged defaults and breaches of the agreement committed by the appellant the notice specifically mentions that because of the said defaults the appellant .....

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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 co .....

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e in conformity with the rules of natural justice. 30) We are conscious of the following words of wisdom expressed by this Court through the pen of Justice Krishna Iyer in the case of Chairman, Board of Mining Examination and Anr. v. Ramjee; 1977 (2) SCC 256: If the jurisprudence of remedies 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 ev .....

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cial 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 flexible yet f .....

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to why such an action be not taken, final order can be passed blacklisting such a person only on the premise that this is one of the actions so stated in the provisions of NIT. The Prejudice Argument 32) It was sought to be argued by Mr. 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 defaul .....

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ning 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 the inquiry officer s report to the delinquent if such inquiry off .....

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ed 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 whatsoeve .....

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pplicant. 44. From the aforesaid decisions, it is clear that though supply of report of the inquiry officer is part and parcel of natural justice and must be furnished to the delinquent employee, failure to do so would not automatically result in quashing or setting aside of the order or the order being declared null and void. For that, the delinquent employee has to show prejudice . Unless he is able to show that non- supply of report of the inquiry officer has resulted in prejudice or miscarri .....

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