The Supreme Court on November 16, 2020 in the case of UMC Technologies Private Limited vs. Food Corporation of India[1] held that a show-cause notice which intends to blacklist must clarify the same in its contents when served to the party. It also delved into the importance of clarity while serving such notices and the gravity of ‘blacklisting’ any entity in the omnipresence of principles of natural justice.
Backgrounds and Facts
The Food Corporation of India (‘FCI’) issued a Bid Document (‘Document’) on November 25, 2016 inviting bids for appointment of a recruitment agency to conduct the process of recruitment for hiring watchmen for the FCI’s office. The Appellant was the successful bidder vide letter dated March 28, 2017. The Appellant was appointed for a period of 2 years w.e.f. February 14, 2017.
Pursuant to the same, the Appellant conducted a written exam on April 1, 2018 for eligible aspirants at various centres in Madhya Pradesh. A Special Task Force of Bhopal Police on the same day arrested 50 persons in Gwalior(Madhya Pradesh), who possessed certain handwritten documents which prima facie appeared to be the question papers of the exam conducted by the Appellant. Further, the police filed a charge sheet against certain persons including an employee of the Appellant.
Once the FCI came to know about the events, it issued a show cause notice dated April 10, 2018 to the Appellant which alleged that the Appellant had breached various clauses of the Document on the ground that it was the responsibility of the Appellant to conduct the examination in a highly confidential manner. The FCI alleged that the Appellant had violated the clauses of the Document due to its negligence in ensuring smooth conduct of the examination. The said notice further directed the Appellant to furnish an explanation within 15 days, failing which an appropriate ex-parte decision would be taken by the FCI.
The Appellant denied any negligence or leak of question papers and furnished several factual justifications supporting its stance vide its letter dated April 12, 2018. It requested the FCI to make the documents seized by the police available to the Appellant for forensic analysis. The FCI complied with the same on October 18, 2018 while later it called upon the Appellant to submit its final reply/explanation. Subsequently, the Appellant on October 27, 2018 submitted an Explanation which contended that there were many dissimilarities between the two and thus there had been no leakage or dissemination of the original question papers.
The FCI concluded that the negligence of Appellant was established beyond reasonable doubt and proceeded to terminate its contract with the Appellant and also blacklisted the Appellant from participating in any future tenders of the FCI for a period of 5 years. Additionally, the Appellant’s security deposit with the FCI was forfeited and the Appellant was directed to execute the unexpired portion of the contract at its own cost and risk.
Appellant’s Arguments in Brief
· The Appellant only seeks to contest the issue of blacklisting and not the termination of the contract between the Appellant and the FCI.
· The Appellant argued that the clauses of the Document quoted by the FCI lay down the eligibility criteria and do not grant any power of future blacklisting.
· Further, it was alleged that the said clause was not mentioned in the FCI’s show cause notice dated April 10, 2018.
· The Appellant added that the said notice was against the principles of natural justice as it neither mentioned the grounds necessitating action nor specified what actions were proposed to be taken.
· Finally, that in the absence of a valid show cause notice, the consequent blacklisting order cannot be sustained.
It was noted by the Appellant that the FCI’s order had a huge impact on the Appellant as FCI’s other branches in other States and other government corporations had eventually issued notices to cancel contracts of the Appellant or prevent them from participating in their tender process and have also forfeited or withheld outstanding payments and security deposits. Due to the domino effect of the FCI’s blacklisting of the Appellant, the Appellant has suffered unfairly.
Respondent’s Arguments in Brief
· The FCI argued that due to the negligence of the Appellant, the entire recruitment process had to be scrapped and it has deprived several applicants of employment and undermined the confidence of the public in the recruitment process of the FCI.
· Further submissions made stated that it was against public interest to permit the Appellant to participate in future tenders.
· Finally, it was submitted that the Appellant must have been aware of the possibility of the punishment of blacklisting as the same was provided for in the Document.
Court’s Observations
Principle of Natural Justice
The Court commented that it is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. It is a basic principle of natural justice.
Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously.
The Court relied on an earlier decision[2] to hold that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the party to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard.
Blacklisting
In the context of blacklisting of a person or an entity by the state or a state corporation, the requirement of a valid, particularised and unambiguous show cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatisation that accrues to the person/entity being blacklisted.
This is because blacklisting has the effect of denying a person or an entity the privileged opportunity of gaining government contracts. It also has long-lasting civil consequences for the future business prospects of the blacklisted person.
The Court opined that it was clear that a prior show cause notice granting a reasonable opportunity of being heard is an essential element of all administrative decision-making and particularly so in decisions pertaining to blacklisting which entail grave consequences for the entity being blacklisted. In such circumstances, furnishing of a valid show cause notice is critical and a failure to do so would be fatal to any order of blacklisting.
A clear legal position[3] emerged that for a show cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist. Such clarity 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.
The Present Matter
The mere existence of a 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. The FCI’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 FCI in pursuance of this notice. Had the FCI expressed its mind in the show cause notice to blacklist, the Appellant could have filed a suitable reply for the same.
It held that the April 10, 2018 dated show cause notice is not a valid one. Therefore, the order of blacklisting the Appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law and the blacklisting order passed by the FCI dated January 09, 2019 cannot be sustained. Finally, the High Court order upholding the FCI’s blacklisting order was set aside by the Court.
Conclusion
The Supreme Court in this case highlighted crucial points with regard to any litigation. It upheld the validity of principle of natural justice when prima facie a contradictory view had been taken by the High Court. Further, the gravity of “blacklisting” any entity and the consequences that follow such an order has been actively dealt with by the Apex Court to deter frivolous proceedings in the future.
[1] Civil Appeal No. 3687 of 2020. [2] Nasir Ahmad v. Assistant Custodian General, Evacuee Property, Lucknow and Anr, (1980) 3 SCC 1. [3] Erusian Equipment & Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70; Raghunath Thakur v. State of Bihar, (1989) 1 SCC 229; Gorkha Security Services v. Government (NCT of Delhi) and Ors, (2014) 9 SCC 105.
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