In a significant ruling, the Supreme Court of India quashed the show cause notice issued by the Chhattisgarh Textbook Corporation (CTC) seeking to blacklist M/s Techno Prints for three years over an alleged breach of contract. The apex court, while allowing the corporation to forfeit the Earnest Money Deposit (EMD) of Rs. 5,00,000, held that blacklisting should not be imposed as a mere procedural formality and must be backed by justifiable reasons, ensuring adherence to due process at the show cause notice stage.
Background of the Case
M/s Techno Prints, a printing firm registered with CTC, was awarded a contract in 2020 to print textbooks for school students in Chhattisgarh. Due to the COVID-19 pandemic, the firm was unable to meet the stipulated timelines prescribed in the tender agreement. The CTC, citing violations of clauses 16.1, 16.3, and 16.9 of the contract, issued a show cause notice on December 14, 2022, demanding an explanation for the delay and seeking to blacklist the firm for three years.
The company challenged the notice before the Chhattisgarh High Court, which rejected its plea, stating that a show cause notice does not constitute a final decision and allows the firm to respond. The appellate court upheld this view, leading to an appeal before the Supreme Court.
Key Legal Issues
The Supreme Court addressed two primary issues:
Whether the writ petition against a show cause notice was maintainable.
Whether the proposed blacklisting was justified under the facts of the case.
Observations of the Supreme Court
A bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan delivered the ruling, emphasizing that blacklisting a contractor is a severe punitive measure that should not be imposed lightly. The court made the following key observations:
“Asking the appellant to file a reply and then await the final order, which may go against him, would be nothing but an empty formality.”
“The show cause notice in most cases is issued with a pre-determined mind, merely to complete a procedural requirement before passing a blacklisting order.”
The court cited Kulja Industries Limited v. Chief General Manager Western Telecom Project BSNL & Ors. [(2014) AIR SC 9], where it was held that blacklisting must be based on habitual failure, substandard supply, or fraudulent actions. It further referenced Blue Dreamz Advertising Pvt. Ltd. v. Kolkata Municipal Corporation (2024 INSC 589), which ruled that blacklisting should only be invoked in cases of dishonesty or irresponsibility, not mere breaches of contract.
The Supreme Court highlighted that an order of blacklisting carries severe consequences, effectively barring a company from participating in public tenders and impacting its reputation and financial viability. Hence, the threshold for invoking blacklisting must be high and must be reflected even in the issuance of a show cause notice.
Final Judgment
The court ruled that while the corporation was within its rights to forfeit the EMD of Rs. 5,00,000, the decision to issue a show cause notice for blacklisting was not legally sustainable. The show cause notice was quashed, with the court holding that:
“The power to blacklist cannot be exercised arbitrarily when the grounds for the same are based merely on breaches of contractual obligations and not on dishonesty or willful misconduct.”
The Supreme Court also advised government agencies and corporations to carefully examine the circumstances before issuing blacklisting orders and avoid unnecessary litigation.
Senior Advocate Gaurav Agarwal appeared for M/s Techno Prints, arguing that the firm’s failure to meet the contract obligations was due to unforeseen circumstances beyond its control and did not warrant blacklisting. Advocate Ankit Mishra represented CTC, contending that contract violations warranted severe action.
