Facts of the Case

The petitioner company, M/s. NCC Limited, a reputed construction and engineering company, participated in a tender floated for the construction of a two-lane major bridge across the Penna River on NH-67 in SPSR Nellore District under the Engineering, Procurement and Construction (EPC) Mode.

The petitioner emerged as the successful bidder, and a Letter of Award (LOA) was issued after acceptance of its bid amounting to ₹62,01,90,999.

Before executing the agreement, the petitioner repeatedly informed the authorities that substantial encroachments existed at the project site, making execution of the work impossible unless the authorities confirmed land availability. Despite these representations, the respondents insisted upon submission of the performance bank guarantee and execution of the contract.

Subsequently, without issuing any prior show cause notice or granting an opportunity of hearing, the respondents suspended/blacklisted the petitioner from participating in tenders relating to MoRTH, NHAI, NHIDCL, and other centrally sponsored schemes until 16.01.2023.

Aggrieved by this action, the petitioner approached the Andhra Pradesh High Court under Article 226 of the Constitution challenging the blacklisting order as arbitrary, illegal, and violative of the principles of natural justice.

Issues Involved

  1. Whether the respondents could blacklist a contractor without issuing a prior show cause notice.
  2. Whether suspension/blacklisting without providing an opportunity of hearing violates the principles of natural justice.
  3. Whether the impugned blacklisting order was arbitrary and violative of Articles 14, 21 and 300A of the Constitution of India.
  4. Whether the respondents were required to follow the procedure prescribed under the Request for Proposal (RFP) before imposing blacklisting.

Petitioner's Arguments

The petitioner contended that:

  • The impugned blacklisting order was issued without serving any show cause notice.
  • No opportunity of hearing was provided before passing the order.
  • Blacklisting has severe civil consequences affecting the company's right to participate in government contracts.
  • The respondents ignored the petitioner's genuine concerns regarding encroachments and non-availability of the project site.
  • The action violated Articles 14, 21 and 300A of the Constitution.
  • The respondents failed to comply with the mandatory principles of natural justice.

The petitioner relied upon the following Supreme Court judgments:

  • Erusian Equipment & Chemicals Ltd. vs State of West Bengal
  • Medipol Pharmaceutical India Pvt. Ltd. vs Post Graduate Institute of Medical Education and Research
  • Patel Engineering Ltd. vs Union of India

Respondents' Arguments

The respondents argued that:

  • The petitioner was the successful bidder and was required to furnish the performance bank guarantee.
  • Multiple communications were issued requiring execution of the contract.
  • The work front had already been made available.
  • Despite repeated notices, the petitioner failed to execute the agreement.
  • Therefore, the impugned action was justified under the terms of the Request for Proposal (RFP).

Court Order / Findings

The Andhra Pradesh High Court held that blacklisting has serious civil consequences and cannot be imposed without adhering to the principles of natural justice.

The Court observed that:

  • The impugned proceedings did not disclose issuance of any show cause notice before blacklisting.
  • Blacklisting deprives a contractor of the opportunity to participate in future government contracts.
  • The principle of Audi Alteram Partem (hear the other side) is mandatory before imposing such penal consequences.
  • The Supreme Court has consistently held that fair procedure is an essential requirement before blacklisting any contractor.

The Court concluded that:

  • The impugned blacklisting order was passed in violation of the principles of natural justice.
  • Accordingly, the blacklisting order was set aside.
  • However, the respondents were granted liberty to initiate fresh action strictly in accordance with the RFP and after following due process of law.

Important Clarification

This judgment does not prevent the Government or its authorities from blacklisting a contractor.

The Court clarified that:

  • Authorities are fully empowered to initiate blacklisting proceedings.
  • However, before doing so, they must:
    • Issue a proper show cause notice;
    • Give adequate opportunity to submit an explanation;
    • Consider the explanation objectively; and
    • Pass a reasoned order consistent with the principles of natural justice.

The respondents were also directed to follow Clause 2.20.1 of the Request for Proposal (RFP) while taking any future action.

Sections  Involved

  • Article 226 of the Constitution of India
  • Article 14 of the Constitution of India
  • Article 21 of the Constitution of India
  • Article 300A of the Constitution of India
  • Principles of Natural Justice
  • Principle of Audi Alteram Partem
  • Clause 2.20.1 of the Request for Proposal (RFP)
  • EPC Contract Conditions

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785570011_2560compressed.pdf 

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