While setting aside a banning order issued by National Thermal Power Corporation Limited (NTPC), the Delhi High Court has held that a debarment order issued by one entity cannot be extended to other group companies without any independent opportunity of hearing through a separate show cause notice.

The Petition before the High Court was filed by the petitioner assailing a “banning circular” issued by the first respondent- National Thermal Power Corporation Limited (NTPC) whereby the business dealings between the Corporation and the petitioner were banned for a period of one year.

The Single Bench of Justice Sachin Datta further held, “In any event, a debarment order issued by one entity cannot be extended to other group companies without any independent opportunity of hearing through a separate show cause notice. The principles of natural justice do not contemplate a cascading penalty in the absence of reasoned determination, (after procedural due process) by each entity proposing to inflict penalty.”

Senior Advocate Sanjeev Sagar represented the Petitioner, while ASG Chetan Sharma represented the Respondent.

Factual Background

A purchase order was awarded to the petitioner by the second respondent/Aravali Power Company Private Limited (APCPL), under a Notice Inviting Tender “for Structure Strengthening & Life Enhancement of NDCT-II” at Indira Gandhi Super Thermal Power Project (IGSTPP), Jharli, Jhajjar (Haryana), at a tender cost of Rs 10,20,80,450.33. Disputes arose between the petitioner and the respondent Corporation, allegedly due to the failure of the respondent to provide necessary site access and requisite permissions, as a result of which the execution of the said contract was allegedly rendered impossible.

Subsequently, the petitioner invoked the arbitration in terms of the relevant contractual stipulation in the contract agreement, and the same has remained pending adjudication before the sole Arbitrator. In the meantime, a speaking order came to be issued by the second respondent banning the petitioner from business dealings with the respondent corporation for a period of one year. An appeal against the aforesaid order was stated to have been filed by the petitioner, and the same is pending consideration. It was submitted that despite the pendency of the appeal and the arbitration proceedings, the Corporation had issued the impugned “banning circular”. Thus, the petitioner approached the High Court assailing the impugned order on the ground that there was no legal, contractual relationship or dealings between the petitioner and NTPC.

Reasoning

On a perusal of the facts of the case, the Bench found that the petitioner’s privity of contract was only with the second respondent/APCPL. The petitioner had no contractual association with NTPC, and the petitioner’s dealings with the second respondent/APCPL, which is an independent corporate entity, could not have any bearing or impinge upon the petitioner’s rights to pursue business dealings with entities other than the second respondent, APCPL.

The Bench mentioned, “It has been emphasised by the Supreme Court time and again, that banning/debarment is akin to civil death and that such an action must be taken with extreme circumspection and after adhering to procedural safeguards as mandated under law, and in consonance with principles of natural justice. The extension of banning order passed by the respondent no.2, to proscribe business dealings of the petitioner qua entities which do not have any contractual dealings with petitioner, constitutes an arbitrary, disproportionate and unwarranted restriction of the legal and fundamental rights of the petitioner and its shareholders. The same cannot be countenanced.”

The Bench was of the view that if the respondent NTPC or any other JVs/subsidiaries seek to debar the petitioner, a mandatory prerequisite is to issue an independent show cause notice with regard thereto. Referring to the judgments in Gorkha Security Services vs. Govt. (NCT of Delhi) (2014) and UMC Technologies Private Limited vs. Food Corporation of India and Anr. (2021), the Bench said, “In the present case, the banning of the petitioner qua NTPC and other entities (besides APCPL) is not preceded by any show cause notice. As such, such action falls foul of the dicta laid down in Gorkha Security Services (supra) and UMC Technologies Private Limited (supra).”

Thus, the Bench set aside the impugned order.

Cause Title: Cembond Constructions Pvt Ltd v. National Thermal Power Corporation Limited (Neutral Citation: 2025:DHC:77112025:DHC:7711)

Appearance

Petitioner: Senior Advocate Sanjeev Sagar, Advocates AVS Subramnayam, Niraj Kumar, Nazia Parveen

Respondent: ASG Chetan Sharma, Senior Advocate Viraj Datar, Advocates Kaustubh Anshuraj, Amit Gupta, R.V. Prabhat, Saurabh Tripathi, Vinay Yadav, Vikram Aditya, Shubham Sharma, Naman, Adarsh Tripathi, Vikram Singh Baid, Ajitesh Garg, Karan Batura, Meenal Duggal

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Delhi High CourtJustice Sachin Datta

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.