Umc Technologies Private Ltd. vs Food Corporation Of India on 16 November, 2020


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Supreme Court of India

Umc Technologies Private Ltd. vs Food Corporation Of India on 16 November, 2020

Author: S. Abdul Nazeer

Bench: S. Abdul Nazeer, Sanjiv Khanna

                                                                  REPORTABLE

                                 IN THE SUPREME COURT OF INDIA

                                   CIVIL APPELLATE JURISDICTION

                                CIVIL APPEAL NO. 3687         OF 2020
                            (Arising out of S.L.P. (C) No. 14228 of 2019)


          UMC TECHNOLOGIES PRIVATE LIMITED                       …APPELLANT(S)

                                               VERSUS

          FOOD CORPORATION OF INDIA AND ANR. …RESPONDENT(S)


                                          JUDGMENT

S. ABDUL NAZEER, J.

1. Leave granted.

2. This appeal is directed against the order dated 13.02.2019

passed by the High Court of Madhya Pradesh at Jabalpur in Writ

Petition No. 2778 of 2019. By the impugned order, the High Court

has dismissed the writ petition and has upheld the validity of the
Signature Not Verified

order dated 09.01.2019 passed by respondent no.1, namely Food
Digitally signed by
Anita Malhotra
Date: 2020.11.16
19:04:05 IST
Reason:

Corporation of India (for short ‘the Corporation’) through its

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Deputy General Manager (Personnel), who is respondent no. 2

herein, to terminate a contract of service with the appellant and

to blacklist the appellant from participating in any future tenders

of the Corporation for a period of 5 years.

3. The Corporation had issued a Bid Document on 25.11.2016

inviting bids for appointment of a recruitment agency to conduct

the process of recruitment for hiring watchmen for the

Corporation’s office. The appellant submitted its bid on

21.12.2016 and was eventually declared as the successful bidder

vide the Corporation’s letter dated 28.03.2017. After completion

of the formalities, the appellant was appointed for a period of 2

years w.e.f. 14.02.2017 for undertaking the tendered work of

conducting recruitment of watchmen for the Corporation.

4. As part of its work, on 01.04.2018, the appellant conducted a

written exam for eligible aspirants for the post of watchman with

the Corporation at various centres in Madhya Pradesh. On the

same day, a Special Task Force of Bhopal Police arrested 50

persons in Gwalior, who were in possession of certain handwritten

documents which prima facie appeared to be the question papers

related to the examination conducted by the appellant. The police

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filed a charge sheet on 03.08.2018 against certain persons

including an employee of the appellant. Upon receipt of the above

information, the Corporation issued a show cause notice dated

10.04.2018 to the appellant informing the appellant about the

said arrest and seizure of documents which appeared to contain

question papers related to the examination conducted by the

appellant. This notice alleged that the appellant had breached

various clauses of the Bid Document dated 25.11.2016 on the

ground that it was the sole responsibility of the appellant to

prepare and distribute the question papers as well as conduct the

examination in a highly confidential manner. Several clauses of

the Bid Document were listed in the said notice dated 10.04.2018

and the Corporation alleged that the appellant had violated the

same due to its abject failure and clear negligence in ensuring

smooth conduct of the examination. The said notice directed the

appellant to furnish an explanation within 15 days, failing which

an appropriate ex-parte decision would be taken by the

Corporation.

5. The appellant replied to the aforesaid notice vide its letter

dated 12.04.2018 denying any negligence or leak of question

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papers from its end. In its communication, the appellant furnished

several factual justifications in support of its position and also

requested the Corporation to make the documents seized by the

police available to the appellant for forensic analysis. These

documents were provided to the appellant vide the Corporation’s

letter dated 18.10.2018. The Corporation addressed another letter

dated 22.10.2018 calling upon the appellant to submit its final

reply/explanation. Thereafter, on 27.10.2018, the appellant

submitted an Observation Report-cum-Reply/Explanation which

compared the seized documents with the original question papers

and contended that there were many dissimilarities between the

two and thus there had been no leakage or dissemination of the

original question papers.

6. By its aforesaid order dated 09.01.2019, the Corporation

concluded that the shortcomings/negligence on part of the

appellant stood established beyond any reasonable doubt and

proceeded to terminate its contract with the appellant and also

blacklisted the appellant from participating in any future tenders

of the corporation for a period of 5 years. Further, the appellant’s

security deposit with the Corporation was forfeited and the

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appellant was directed to execute the unexpired portion of the

contract at its own cost and risk.

7. Aggrieved by the above order of the Corporation, the

appellant, after issuing a legal notice, filed Writ Petition No. 2778

of 2019 before the High Court. This petition came to be dismissed

by the High Court’s aforesaid order dated 13.02.2019 which is

under challenge before us.

8. At the outset, it may be noted that Shri Gourab Banerji,

learned senior counsel for the appellant, has submitted that the

appellant only seeks to contest the issue of blacklisting and not

the termination of the contract between the appellant and the

Corporation. Thus, the sole issue that falls for determination

before us is whether the Corporation was entitled to and justified

in blacklisting the appellant for 5 years from participating in its

future tenders.

9. Before delving into the contentions of the parties, it would be

useful to extract some of the provisions of the Corporation’s Bid

Document dated 25.11.2016 which would be material to

determining the validity of the blacklisting order dated

09.01.2019:

                                      5
              “INSTRUCTIONS TO BIDDERS

        XXX                  XXX               XXX

10. DISQUALIFICATION CONDITIONS: Bidder who have
been blacklisted or otherwise debarred by FCI or
central/state Govt. or any central/ State PSU / Statutory
Corporations, will be ineligible during the period of such
blacklisting.

10.1 Any Bidder whose contract with FCI or
central/state Govt. or any central/State PSU/Statutory
Corporations has been terminated before the expiry of the
contract period for breach of any terms and conditions at
any point of time during the last five years, shall be
ineligible.

10.2 Bidder whose Earnest Money Deposit and/or
Security Deposit have been forfeited by the FCI or
central/state Govt. or any central/State PSU/Statutory
Corporations, during the last five years, for breach of any
terms and conditions, shall be ineligible.

 XXX                XXX                XXX

25. CORRUPT PRACTICES:
…

25.4 Any corrupt practice indulged by the agency or any
of its employee at any of the stages of the recruitment
including preparation of the question paper, distribution of
question paper, conducting of the exams, valuation of the
answer sheets, declaration of results etc. shall lead to
immediate cancellation of the contact and the agency
shall be liable for appropriate legal action without
prejudice to any other clause in the contract.

        XXX                  XXX               XXX

42. TERMINATION OF CONTRACT:
42.1 By Corporation
…

(ii) The FCI shall also have, without prejudice to other
rights and remedies, the right in the event of breach by
the Bidder of any of the terms and conditions of the
contract, or failing to observe any of the provisions,

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obligations governing the contract, to terminate the
contract forthwith and to get the work done for the
unexpired period of the contract at the risk and cost of
the Agency and to forfeit the Security Deposit or any part
thereof for recovery of all losses, damages, costs and
expenses which may be incurred by FCI consequent to
such termination and / or in completing the assignment.
FCI may also effect recovery from other sums then due to
the Agency or which at any time thereafter may become
due under this or any other contract with FCI. In case the
sum is not sufficient to cover the full amounts
recoverable, the Agency shall pay FCI on demand the
entire remaining balance due.

(iii) FCI may at any time without assigning any reason
terminate the contract without any liability by giving 7
working days’ notice to the bidder.”

10. On behalf of the appellant, it was submitted by Shri Banerji

that the Corporation had no power under the above quoted or any

other provisions of the Bid Document dated 25.11.2016 to

blacklist the appellant. It was argued that above quoted Clause 10

titled “Disqualifications Conditions”, which has been relied upon

by the Corporation, merely lays down eligibility criteria and does

not grant any power of future blacklisting. It was further alleged

that the said clause was also not mentioned in the show cause

notice dated 10.04.2018 issued by the Corporation. The said show

cause notice was also impinged upon by the appellant by

submitting that it failed to meet the requirements of natural

justice as it neither mentioned the grounds necessitating action

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nor specified what actions were proposed to be taken. Thus, Shri

Banerji submitted that in the absence of a valid show cause

notice, the consequent blacklisting order cannot be sustained. He

further highlighted the outsized impact of the Corporation’s

impugned order on the appellant in as much as the Corporation’s

branches in other States as well as other government

corporations have now issued as many as 5 notices to the

appellant to cancel contracts or prevent the appellant from

participating in their tender process and have also forfeited or

withheld outstanding payments and security deposits. He argued

that due to the domino effect of the Corporation’s blacklisting of

the appellant, the appellant has unreasonably suffered 5

punishments at the hands of the Corporation which is

disproportionate and tantamounts to the civil death of the

appellant.

11. On the other hand, Shri Ajit Pudussery, the learned counsel

appearing on behalf of the Corporation argued that due to the

negligence of the appellant, the entire recruitment process had to

be scrapped and the same has deprived several applicants of

employment and undermined the confidence of the public in the
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recruitment process of the Corporation. In relation to the issue of

blacklisting, he submitted that since the appellant had breached

the terms of the contract by leaking the question papers for the

examination, it was not in public interest to permit it to

participate in future tenders. He further submitted that the

appellant must have been aware of the possibility of the

punishment of blacklisting as the same was provided for in the

Bid Document. Thus, it was argued that since the blacklisting

order was made as per the Bid Document and after issuance of a

show cause notice, to which the appellant was granted ample

time to reply to, the Corporation’s impugned blacklisting order

dated 09.01.2019 cannot be challenged.

12. We have given our anxious consideration to the submissions

made by the learned counsel at the Bar on behalf of the parties.

In our opinion, the validity of the impugned order of the

Corporation dated 09.01.2019, so far as the blacklisting of the

appellant thereunder is concerned, would in turn be determined

by the validity of the underlying show cause notice dated

10.04.2018 issued by the Corporation to the appellant.

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13. At the outset, it must be noted 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. The

basic principle of natural justice is that before adjudication starts,

the authority concerned should give to the affected party a notice

of the case against him so that he can defend himself. Such notice

should be adequate and the grounds necessitating action and the

penalty/action proposed should be mentioned specifically and

unambiguously. An order travelling beyond the bounds of notice is

impermissible and without jurisdiction to that extent. This Court

in Nasir Ahmad v. Assistant Custodian General, Evacuee

Property, Lucknow and Anr.,1 has held 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 noticee 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.

1 (1980) 3 SCC 1.

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14. 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, 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.

15. In the present case as well, the appellant has submitted that

serious prejudice has been caused to it due to the Corporation’s

order of blacklisting as several other government corporations

11
have now terminated their contracts with the appellant and/or

prevented the appellant from participating in future tenders even

though the impugned blacklisting order was, in fact, limited to the

Corporation’s Madhya Pradesh regional office. 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.

16. The severity of the effects of blacklisting and the resultant

need for strict observance of the principles of natural justice

before passing an order of blacklisting were highlighted by this

Court in Erusian Equipment & Chemicals Ltd. v. State of

West Bengal2 in the following terms:

“12. … The order of blacklisting has the effect of depriving
a person of equality of opportunity in the matter of public
contract. A person who is on the approved list is unable to
enter into advantageous relations with the Government
because of the order of blacklisting. A person who has
been dealing with the Government in the matter of sale
and purchase of materials has a legitimate interest or
expectation. When the State acts to the prejudice of a
person it has to be supported by legality.

                   XXX                  XXX               XXX
2   (1975) 1 SCC 70.
                                       12

15. … The blacklisting order involves civil consequences.

It casts a slur. It creates a barrier between the persons
blacklisted and the Government in the matter of
transactions. The black lists are instruments of coercion.

XXX XXX XXX

20. Blacklisting has the effect of preventing a person from
the privilege and advantage of entering into lawful
relationship with the Government for purposes of gains.
The fact that a disability is created by the order of
blacklisting indicates that the relevant authority is to have
an objective satisfaction. Fundamentals of fair play
require that the person concerned should be given an
opportunity to represent his case before he is put on the
blacklist.”

17. Similarly, this Court in Raghunath Thakur v. State of

Bihar,3 struck down an order of blacklisting for future contracts

on the ground of non-observance of the principles of natural

justice. The relevant extract of the judgement in that case is as

follows:

“4. … [I]t is an implied principle of the rule of law that
any order having civil consequences should be passed
only after following the principles of natural justice. It has
to be realised that blacklisting any person in respect of
business ventures has civil consequence for the future
business of the person concerned in any event. Even if
the rules do not express so, it is an elementary principle
of natural justice that parties affected by any order should
have right of being heard and making representations
against the order.”

18. This Court in Gorkha Security Services v. Government

(NCT of Delhi) and Ors.4 has described blacklisting as being

3 (1989) 1 SCC 229.

4 (2014) 9 SCC 105.

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equivalent to the civil death of a person because blacklisting is

stigmatic in nature and debars a person from participating in

government tenders thereby precluding him from the award of

government contracts. It has been held thus:

“16. It is a common case of the parties that the
blacklisting has to be preceded by a show-cause notice.
Law in this regard is firmly grounded and does not even
demand much amplification. The necessity of compliance
with the principles of natural justice by giving the
opportunity to the person against whom action of
blacklisting is sought to be taken has a valid and solid
rationale behind it. With blacklisting, many civil and/or
evil consequences follow. It is described as “civil death” of
a person who is foisted with the order of blacklisting. Such
an order is stigmatic in nature and debars such a person
from participating in government tenders which means
precluding him from the award of government contracts.”

19. In light of the above decisions, it is 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 these

cases, furnishing of a valid show cause notice is critical and a

failure to do so would be fatal to any order of blacklisting

pursuant thereto.

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20. In the present case, the factum of service of the show cause

notice dated 10.04.2018 by the Corporation upon the appellant is

not in dispute. Rather, what Shri Banerji has argued on behalf of

the appellant is that the contents of the said show cause notice

were not such that the appellant could have anticipated that an

order of blacklisting was being contemplated by the Corporation.

Gorkha Security Services (supra) is a case where this Court

had to decide whether the action of blacklisting could have been

taken without specifically proposing/contemplating such an action

in the show-cause notice. For this purpose, this Court laid down

the below guidelines as to the contents of a show cause notice

pursuant to which adverse action such as blacklisting may be

adopted:

“Contents of the show-cause notice

21. The central issue, however, pertains to the
requirement of stating the action which is proposed to be
taken. The fundamental purpose behind the serving of
show-cause notice is to make the noticee understand the
precise case set up against him which he has to meet.
This would require the statement of imputations detailing
out the alleged breaches and defaults he has committed,
so that he gets an opportunity to rebut the same. Another
requirement, according to us, is the nature of action which
is proposed to be taken for such a breach. That should
also be stated so that the noticee is able to point out that
proposed action is not warranted in the given case, even
if the defaults/breaches complained of are not
satisfactorily explained. When it comes to blacklisting,
this requirement becomes all the more imperative, having
regard to the fact that it is harshest possible action.

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22. The High Court has simply stated that the purpose of
show-cause notice is primarily to enable the noticee to
meet the grounds on which the action is proposed against
him. No doubt, the High Court is justified to this agent,
However, it is equally important to mention as to what
would be the consequence if the noticee does not
satisfactorily meet the grounds on which an action is
proposed. To put it otherwise, we are of the opinion that in
order fulfil the requirements of principles of natural
justice, a show-cause notice should meet the following
two requirements viz:

(i) The material/grounds to be stated which according to
the department necessitates an action;

(ii) Particular penalty/action which is proposed to be
taken. It is this second requirement which the High Court
has failed to omit.

We may hasten to add that even if it is not specifically
mentioned in the show-cause notice but it can clearly and
safely be discerned from the reading thereof, that would
be sufficient to meet this requirement.”

21. Thus, from the above discussion, a clear legal position

emerges 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 inferred therefrom, that

there is intention on the part of the issuer of the notice to blacklist

the noticee. Such 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.

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22. To test whether the above stipulations as to the contents of

the show cause have been satisfied in the present case, it may be

useful to extract the relevant portion of the said show cause

notice dated 10.04.2018 wherein the Corporation specified the

actions that it might adopt against the appellant:

“Whereas, the above cited clauses are only indicative &
not exhaustive.

Whereas, it is quite evident from the sequence of events
that M/s U.MC Technologies Pvt. Ltd, Kolkata has violated
the condition/clauses governing the contract due to its
abject failure & clear negligence in ensuring smooth
conduct of examination. As it was the sole responsibility
of the agency to keep the process of preparation &
distribution of question paper and conducting of exam in
highly confidential manner, the apparent leak point
towards, acts of omission & commission on the part of M/S
UMC Technologies Ltd. Kolkata.

Whereas, M/S UMC Technologies Pvt. Ltd. Kolkata is
hereby provided an opportunity to explain its Position in
the matter before suitable decision is taken as per T&C of
MTF. The explanation if any should reach this office within
a period of 15 days of receipt of this notice falling which
appropriate decision shall be taken. ex-parte as per terms
and conditions mentioned in MTF without prejudice to any
other legal rights & remedies available with the
corporation.”

23. It is also necessary to highlight the order dated 09.01.2019

passed by the Corporation in pursuant to the aforesaid notice, the

operative portion of which reads as under:

“After having examined the entire matter in detail, the
shortcomings/negligence on the part of M/s UMC
Technologies Pvt. Ltd. stands established beyond any

17
reasonable doubt. Now, therefore in accordance with
clause 42.1(II) of the governing MTF, the competent
authority hereby terminates the contract at the risk and
cost of the Agency. As per Clause No. 10.1 & 10.2
the said M/s UMC Technologies Pvt. Ltd. is hereby
debarred from participating in any future tenders
of the corporation for a period of Five years.
Further, the Security Deposit too stands forfeited as per
clause 15.6 of MTF. This order is issued without
prejudice to any other legal remedy available with FCI
to safeguard its interest.”

24. A plain reading of the notice makes it clear 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. 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. In fact, Clause 10 of the same Instruction to Bidders

section of the Bid Document, which the Corporation has argued to

be the source of its power to blacklist the appellant, is not even

mentioned in the show cause notice. While the notice clarified

that the 12 clauses specified in the notice were only indicative

and not exhaustive, there was nothing in the notice which could

18
have given the appellant the impression that the action of

blacklisting was being proposed. This is especially true since the

appellant was under the belief that the Corporation was not even

empowered to take such an action against it and since the only

clause which mentioned blacklisting was not referred to by the

Corporation in its show cause notice. While the following

paragraphs deal with whether or not the appellant’s said belief

was well-founded, there can be no question that it was incumbent

on the part of the Corporation to clarify in the show cause notice

that it intended to blacklist the appellant, so as to provide

adequate and meaningful opportunity to the appellant to show

cause against the same.

25. 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. 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

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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. As a result, the consequent

blacklisting order dated 09.01.2019 cannot be sustained.

26. In view of our conclusion that the blacklisting order dated

09.01.2019 passed by the Corporation is contrary to the principles

of natural justice, it is unnecessary for us to consider the other

contentions of the learned counsel for the appellant. Having

regard to the peculiar facts and circumstances of the present

case, we deem it appropriate not to remit the matter to the

Corporation for fresh consideration.

27. For the foregoing reasons, the appeal succeeds and it is

accordingly allowed. The order dated 13.02.2019 passed by the

High Court is set aside. The Corporation’s order dated 09.01.2019

is hereby quashed only so far as it blacklists the appellant from

participating in future tenders. The parties will bear their own

costs.

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28. Pending application(s), if any, shall stand disposed of.

…..……………………..…J.

(S. ABDUL NAZEER)

….…………………………J.

(B. R. GAVAI)
New Delhi;

November 16, 2020

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