A Show Cause Notice to Constitute the Valid Basis of a Blacklisting Order Must Spell Out Clearly: SC

A show cause notice, to constitute the valid basis of a blacklisting order, must spell out clearly: SC

The Supreme Court while setting aside a blacklisting order issued against Umc Technologies Private Limited had ruled that a show cause notice, to constitute the valid basis of a blacklisting order, must spell out clearly, or its contents are such that it can be clearly inferred therefrom, that there is an intention on the part of the issuer of the notice to blacklisting the noticee. A vague show cause notice will be in violation of the principles of natural justice, it added.

Brief Facts of the Case

  • Food Corporation of India had issued an order to blacklist the UMC Technologies Private Limited from participating in any future tenders of the Corporation for a period of 5 years.
  • UMC Technologies Private Limited approached the Apex Court against the order of the High Court which dismissed the challenge against this blacklisting order.

Observation made by the Court

  • The contention raised by the company was that the action of blacklisting could not have been taken without specifically proposing/contemplating such an action in the show-cause notice. In accord with the contention, the bench noted that a clear notice is essential for ensuring that the person, against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting. Referring to the show cause notice, the court said that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its show cause notice. The Court ruled that a show cause notice, to constitute the valid basis of a blacklisting order, must spell out clearly.
  • The mere existence of a clause in the Bid Document, which mentions blacklisting as a bar against eligibility, cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show cause notice, it added.

“The Corporation’s notice is completely silent about blacklisting and as such, it could not have led the appellant to infer that such an action could be taken by the Corporation in pursuance of this notice. Had the Corporation expressed its mind in the show cause notice to black list, the appellant could have filed a suitable reply for the same. Therefore, we are of the opinion that the show cause notice dated 10.04.2018 does not fulfil the requirements of a valid show cause notice for blacklisting. In our view, the order of blacklisting the appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law.”

  • In the case in hand, the Court concluded that a plain reading of the notice made it clear that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the Food Corporation of India in its show cause notice. “After listing 12 clauses of the “Instruction to Bidders”, which were part of the Corporation’s Bid Document dated 25.11.2016, the notice merely contains a vague statement that in light of the alleged leakage of question papers by the appellant, an appropriate decision will be taken by the Corporation,”
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  • Significantly, the Court spell out that, this domino effect, which can effectively lead to the civil death of a person, shows that the consequences of blacklisting travel far beyond the dealings of the blacklisted person with one particular government corporation and in view thereof, this Court has consistently prescribed strict adherence to principles of natural justice whenever an entity is sought to be blacklisted.
  • The Court further observed that Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts and hence there should be strict adherence to principles of natural justice whenever an entity is sought to be blacklisted.
  • Specifically, in the context of blacklisting of a person or an entity by the state or a state corporation, the requirement of a valid, particularized and unambiguous show cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatization that accrues to the person/entity being blacklisted. Here, it may be gainful to describe the concept of blacklisting and the graveness of the consequences occasioned by it. Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. This privilege arises because it is the State who is the counterparty in government contracts and as such, every eligible person is to be afforded an equal opportunity to participate in such contracts, without arbitrariness and discrimination. Not only does blacklisting takes away this privilege, but it also tarnishes the blacklisted person’s reputation and brings the person’s character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person.
  • The Supreme Court, therefore, set aside the orders passed by the High Court and Food Corporation of India holding that the show cause notice issued by Food Corporation of India was “contrary to the principles of natural justice.”

Case: UMC TECHNOLOGIES PRIVATE LIMITED vs. FOOD CORPORATION OF INDIA

Citation: CIVIL APPEAL NO. 3687 OF 2020

Coram: Justices S. Abdul Nazeer and BR Gavai

A show cause notice, to constitute the valid basis of a blacklisting order, must spell out clearly: SC

Also Read: High Court Can Dismiss Second Appeal Without Even Formulating The Substantial Question Of Law: SC

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