WPMS/3249/2015 of Grass Roots Research And Creation India Private Limited Vs State Of Uttarakhand AND OTHERS

IN THE HIGH COURT OF UTTARAKHAND ATNAINITAL

Writ Petition (M/S) No. 3249 of 2015 (Under Article 226 of the Constitution of India)

Grass Roots Research & Creation India Private Ltd.

...….…… Petitioner

versus

State of Uttarakhand and others

..…… Respondents

Mr. Piyush Garg and Mr. Parminder Singh Ratan, Advocates, present for the writ petitioner. Mr. R.C.Arya, Standing Counsel, present for the State/respondents.

U.C. Dhyani, J. (Oral)

By means of present writ petition, the petitioner seeks to issue writ, order or direction in the nature of certiorari quashing the Government Order No. 1835/VII-1/10-Vividh/2015, dated 03.11.2015, passed by respondent no. 2, whereby the petitioner has been declared to be blacklisted for five years in the State of Uttarakhand.

2. It is an admitted fact that the petitioner was blacklisted vide Government Order No. 1835/VII-1/10-Vividh/2015, dated 03.11.2015, without notice. The order dated 03.11.2015 has been passed in violation of Principle of Natural Justice without grant of any opportunity of hearing to the petitioner. Before issuance of aforesaid order, no notice

was ever issued to the petitioner providing for any such anticipated action by the respondents. The petitioner, it is argued, has suffered serious prejudice on account of the order dated 03.11.2015, passed by the respondent no.2.

3. It will be highly useful to reproduce the observations made by Hon’ble Apex Court in Civil Appeal Nos. 7167-7168 of 2014, Gorkha Security Services vs. Govt. of NCT of Delhi & others, herein below for convenience:

“ 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 mandatory requirement to give such show cause notice before black listing. It is also undisputed that in the present case the show cause notice which was given for alleged failure on the part of the appellant herein to commence/ execute the work that was awarded to the appellant, did not specifically propose the action of blacklisting the appellant firm. The question is as to whether it is mandatory requirement that there has to be 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?

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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 specifically spelled out in the show cause notice?

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Necessity of serving show cause notice as requisite of. the Principles of Natural Justice:

17) It is common case of the parties that the blacklisting has to be preceded by 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 valid and solid rationale behind it. With blacklisting many civil and/ or evil consequences follow. It is described as “civil death” of person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such person from participating in Government Tenders which means precluding him from the award of Government contracts. Way back in the year 1975, this court in the case of M/s. Erusian Equipment & Chemicals Ltd. v. State of West Bengal & Anr.; (1975) 1 SCC 70, highlighted the necessity of giving an opportunity to such person by serving show cause notice thereby giving him opportunity to meet the allegations which were in the mind of the authority contemplating blacklisting of such 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 law or without making 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 person of equality of opportunity in the matter of public contract. person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. person who has been dealing with the Government in the matter of sale and purchase of materials has legitimate interest or expectation. When the State acts to the prejudice of person it has to be supported by legality.

20. Blacklisting has the effect of preventing person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist”.

Again, in Raghunath Thakur v. State of Bihar and Ors.;(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 of the rule of law that any order having civil consequence should be passed only after allowing 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 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 appropriate authorities from taking any future steps for blacklisting the appellant if the Government is so entitled to do in accordance with law i.e. after giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State Government will be at liberty to pass any order in accordance with law indicating the reasons therefor. We, however, make it quite clear that we are not expressing any 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 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 contract includes the right not to make contract. By definition, the said right is inherent in every person capable of entering into contract. However, such right either to enter or not to enter into contract with any person is subject to constitutional obligation to obey the command of Article 14. Though nobody has any right to compel the State to enter into contract, everybody has right to be treated equally when the State seeks to establish contractual relationships. The effect of excluding person from entering into contractual relationship 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 contractual relationship with person or class of persons for legitimate purpose. The authority of the State to blacklist person is 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 decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in given case can vary depending upon various factors.”

34) For the aforesaid reasons, 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. However, we make it clear that it would be open to the respondents to take any action in this behalf after complying with the necessary procedural formalities delineated above.”

4. Present writ petition is, accordingly, disposed of in the manner that the Government Order No. 1835/VII-1/10-Vividh/2015, dated 03.11.2015, passed by respondent no. 2, whereby the petitioner has been declared blacklisted is hereby quashed. However, liberty is granted to the respondent to pass fresh order, after grant of proper opportunity of hearing to the petitioner.

5. copy of this judgment/order be supplied to the learned counsel for the petitioner today itself on payment of usual charges.

(U.C. Dhyani, J.)

22.12.2015

Kaushal