Mere Allegation Of Breach Of Contractual Obligations Does Not Invite Punitive Action Like Blacklisting: Supreme Court

The Supreme Court held that mere allegation of breach of contractual obligations does not invite any punitive action such as blacklisting of a firm.

The Court held thus in a Civil Appeal preferred by a firm against the Judgment of the Chhattisgarh High Court by which the Single Judge’s Judgment was affirmed.

The two-Judge Bench of Justice J.B. Pardiwala and Justice R. Mahadevan observed, “Plainly, 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.”

The Bench emphasised that an Authority is expected to be very careful before issuing a show cause notice, must understand the facts well, and try to ascertain what sort of violation is said to have been committed by the contractor.

Senior Advocate Gaurav Agarwal appeared on behalf of the Appellant while Advocate Ankit Mishra appeared on behalf of the Respondents.

Facts of the Case

The Appellant firm - M/s Techno Prints was in the business of printing past many years. It was one of the 30 firms registered with the Chhattisgarh Text Book Corporation i.e., the Respondent. The subject matter of the litigation was the show cause notice issued by the Respondent to the Appellant firm, calling upon the firm to show cause as to why it should not be blacklisted for a period of three years and the EMD of Rs. 5 lakhs be forfeited.

The Appellant was also called upon to show cause as to why the loss incurred by the corporation due to its default in fulfilling its terms of contract, be recovered. As per the Respondent, the Appellant violated few clauses of the tender agreement. The show-cause notice issued by the Respondent was made a subject matter of challenge by filing a Writ Petition before the High Court. The Single Judge rejected the same and resultantly, the Appellant filed an Appeal, which was also dismissed. Therefore, the Appellant was before the Apex Court.

Reasoning

The Supreme Court in view of the facts and circumstances of the case, noted, “It is true that ordinarily, a Writ Court should not entertain any petition, seeking to challenge a show cause notice unless the Court is convinced that the same has been issued by an authority having no jurisdiction, or the same is tainted with mala fides.”

The Court said that there is always an inherent power in the authority to blacklist a contractor, but possessing such inherent power and exercising such power are two different situations and connotations. It added that there may be a power but there should be reasonable ground to exercise such power.

“As observed by this Court in Erusian Equipment & Chemicals Ltd. Vs. State of W.B. reported in (1975), an order of blacklisting casts a slur on the party being blacklisted and is stigmatic. Given the nature of such an order and the import thereof, it would be unreasonable and arbitrary to visit every contractor who is in breach of his contractual obligations with such consequences”, it further noted.

The Court observed that 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.

“In the overall view of the matter more particularly in the peculiar facts of the case, we have reached the conclusion 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”, it remarked.

The Court also enunciated that 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.

“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”, it added.

The Court clarified that it shall be open for the Respondent Corporation to forfeit the EMD of Rs. 5 lakhs.

Accordingly, the Apex Court disposed of the Appeal, quashed the show cause notice calling upon the Appellant as to why it should not be blacklisted, and refused to interfere with all other parts of the said notice except the blacklisting part.

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

Appearance:

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

Respondents: AOR Shantanu Krishna, Advocates Ankit Mishra, Archit Mandhyan, and Kanupriya Mishra.

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