Power To Blacklist Cannot Be Resorted To Simply On Grounds Of Breach Or Violation Of A Term & Condition Of A Contract: SC

The Court quashed the show cause notice issued against M/s Techno Prints (Appellant) by the Chhattisgarh Text Book Corporation (Respondent) for blacklisting the Appellant while allowing the forfeiture of the Earnest Money Deposit (EMD) of ₹5,00,000. The Court held that the issuance of the show cause notice for blacklisting was unwarranted given the circumstances of the case.

A Bench of Justice JB Pardiwala and Justice R Mahadevan held that “asking the appellant herein to file his reply to the show cause notice and then await the final order which may perhaps go against him, leaving him with no option but to challenge the same before the jurisdictional High Court will be nothing but an empty formality. Even otherwise, issuing of show cause notice if not always then at least most of the times is just an empty formality because at the very point of time the show cause notice is issued the Authority has made up its mind to ultimately pass the final order blacklisting the Contractor.”

Senior Advocate Gaurav Agarwal represented the Appellants, while Advocate Ankit Mishra appeared for the Respondent.

Brief Facts

The Appellant, a registered printing firm with the Respondent, was declared L-1 in a tender. The firm was issued a work order for printing and supplying textbooks within the stipulated time. However, due to delays, the corporation issued a show cause notice seeking an explanation as to why the firm should not be blacklisted for three years and why the EMD should not be forfeited.

The Appellant challenged the show cause notice before the High Court of Chhattisgarh. The Single Bench dismissed the Petition, holding that the corporation was within its rights to issue the notice. The Division Bench upheld this decision, following which the Appellant approached the Supreme Court.

Court’s Reasoning

The Supreme Court held, “There have to be strong, independent and overwhelming materials to resort to this power given the drastic consequences that an order of blacklisting has on a contractor. The power to blacklist cannot be resorted to when the grounds for the same are only breach or violation of a term or condition of a particular contract and when legal redress is available to both parties. Else, for every breach or violation, though there are legal modes of redress and which compensate the party like the Corporation before us, it would resort to blacklisting and at times by abandoning or scuttling the pending legal proceedings.”

The Court pointed out that if a contractor is to be visited with the punitive measure of blacklisting on account of an allegation that he has committed a breach of a contract, the nature of his conduct must be so deviant or aberrant so as to warrant such a punitive measure. “A mere allegation of breach of contractual obligations without anything more, per se, does not invite any such punitive action,” it held.

The Bench explained, “In other words, the show cause notice in most of the cases is issued with a pre-determined mind. It has got to be issued because this Court has said that without giving an opportunity of hearing there cannot be any order of blacklisting. To meet with this just a formality is completed by the Authority of issuing a show cause notice.”

Consequently, the Court held, “We clarify that it shall be open for the respondent Corporation to forfeit the EMD of Rs. 5,00,000/-. However, the show cause notice calling upon the appellant as to why it should not be blacklisted is quashed and set aside.”

Cause Title: M/S Techno Prints v. Chhattisgarh Textbook Corporation & Anr. (Neutral Citation: 2025 INSC 236)

Appearance:

Appellants: Senior Advocate Gaurav Agarwal; Advocates Chandrashekhar A Chakdabbi, Vaibhav Shukla, Himanshu Sinha and Anshul Rai

Respondent: Advocates Ankit Mishra, Archit Mandhyan and Kanupriya Mishra; AOR Shantanu Krishna

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