The High Court of Chhattisgarh, in a significant ruling on administrative action in contractual matters, has quashed a blacklisting order issued against a private company, holding that such a drastic measure cannot be prematurely imposed solely on the basis of a pending criminal investigation. The Court observed that an order of blacklisting carries severe civil consequences, amounting to a “civil death,” and must be reserved for egregious cases, not invoked merely because an FIR has been registered.
The judgment was delivered by a division bench comprising Chief Justice Ramesh Sinha and Justice Bibhu Datta Guru in a writ petition filed by Recorders And Medicare Systems Pvt. Limited challenging the order by Chhattisgarh Medical Services Corporation Limited (CGMSCL) that debarred it for three years.
Case Background
The petitioner, Recorders And Medicare Systems Pvt. Limited, participated in Tender Ref. No. 182/EQP/CGMSC/2022-23 for the supply of medical equipment but was unsuccessful. Subsequently, on January 30, 2025, the CGMSCL (Respondent No. 2) issued a show-cause notice alleging the company had engaged in “fraudulent and corrupt practices, collusive bidding, and concealment of material facts.”
The petitioner submitted a detailed reply on February 1, 2025, refuting the allegations and denying any connection with the successful tenderer, Mokshit Corporation. However, on February 5, 2025, the CGMSCL passed an order blacklisting the petitioner for three years. The sole ground for this action was the registration of an FIR by the Anti-Corruption Bureau/Economic Offences Wing (ACB/EOW) of Chhattisgarh under the Prevention of Corruption Act and the Indian Penal Code, which alleged collusive bidding and corrupt practices involving the petitioner and other entities.
Arguments of the Parties
Petitioner’s Submissions:
Appearing for the petitioner, Senior Advocate Mr. Kishore Bhaduri argued that the blacklisting order was arbitrary and illegal. He contended that merely because an FIR has been registered, a company cannot be blacklisted, as no charges have been proven in a court of law. Relying on the Supreme Court’s decision in M/s Erusian Equipment & Chemicals Ltd. v. State of West Bengal, he emphasized that blacklisting must be based on objective satisfaction. He further submitted that the blacklisting violated the tender’s own conditions (Clause 9-b, Section II), which specified blacklisting for submitting false or fabricated documents, a charge for which no evidence was provided.
Respondent’s Submissions:
Mr. Trivikram Nayak, counsel for CGMSCL, defended the blacklisting order as “proper, just and reasonable.” He argued that the petitioner had an alternative remedy of arbitration under the tender conditions. He stated that the principles of natural justice were followed, as a show-cause notice was issued and the petitioner’s reply was considered but found unsatisfactory.
The respondent’s counsel contended that the petitioner had violated the Pre-Contract Integrity Pact by colluding with Mokshit Corporation. It was alleged that the petitioner “very craftly and cunningly” kept its bids 20-25% higher than Mokshit Corporation across all product categories, thereby ensuring the latter was declared the L-1 bidder. This, according to the respondent, was clear evidence of a “concerted effort, malafide motive and nexus” to defraud the department.
Court’s Analysis and Final Decision
The High Court, after hearing both parties, found the blacklisting order to be premature and disproportionate. The bench noted that while an FIR has been registered, the investigation has not yet concluded, and a final report has not been filed.
The Court held that the difference of 20-25% in bid rates “cannot be a conclusive proof that there was a collusive bidding.” It firmly stated, “Mere registration of an offence against the petitioner Company would not automatically mean that the petitioner Company is a convict for the offence which it has been alleged.”
Citing the Supreme Court’s judgment in Baccarose Perfumes & Beauty Products Pvt. Ltd., the bench reiterated that the mere registration of an FIR does not constitute the initiation of proceedings. The Court also referred to M/s. Erusian Equipment & Chemicals Ltd., observing that fairness requires giving a person an opportunity to represent their case before being put on a blacklist.
The bench deemed the measure of blacklisting in this instance to be disproportionate, stating, “the drastic measure of blacklisting the petitioner merely for participating in the tender process, seems to be quite disproportionate.”
In its concluding observations, the Court laid down a crucial principle for administrative bodies:
“An order of blacklisting should not be issued in ordinary cases of breach of contract because it has severe civil consequences, amounting to ‘civil death’ and ‘commercial exile’ for the affected party. This drastic penalty, which bars a party from future contracts and damages their reputation, must be reserved for egregious cases, not for minor violations or bona fide disputes, and must always adhere to principles of proportionality and natural justice.”
Accordingly, the Court allowed the writ petition and quashed the impugned order dated February 5, 2025. It clarified, however, that the criminal case registered against the petitioner shall proceed to its logical end in accordance with the law, without being influenced by any observations made in this judgment.
