Full Judgment Text
REPORTABLE
2024 INSC 589
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2024
(@ SPECIAL LEAVE PETITION (CIVIL) NO. 11682 OF 2018)
THE BLUE DREAMZ ADVERTISING
PVT. LTD. & ANR. APPELLANT(s)
VERSUS
KOLKATA MUNICIPAL CORPORATION
& ORS. RESPONDENT(s)
J U D G M E N T
K.V. Viswanathan, J.
1. Leave granted.
2. The present Appeal is filed against the judgment and
order dated 21.06.2017 passed by the Division Bench of
the High Court at Calcutta in M.A.T. No. 277 of 2017. By
the said judgment, the High Court allowed the Appeal of
the respondents and set aside the judgment of the learned
Single Judge. Consequently, the Writ Petition filed by the
appellant stood dismissed.
Signature Not Verified
Digitally signed by
Deepak Singh
Date: 2024.08.07
17:34:50 IST
Reason:
Brief Facts:
3. The respondent no. 1-Kolkata Municipal Corporation
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(hereinafter referred to as the ‘Corporation’) invited bids for
allotment of contract for display of advertisement on Street
Hoardings (including V Shaped), Bus Passenger shelter
and Kiosks within its jurisdiction. Under the tender
conditions, the contract was to be awarded for a period of
one year, subject to extension of two more years. By an
award of 28.05.2014, the appellant who had participated
in the tender and quoted the highest rate at Rs.
3,70,00,000/- each for cluster no. I, II, III, VI and VIII was
notified as a successful bidder and was requested to
confirm the acceptance. On 29.05.2014, the appellant
conveyed its acceptance.
4. Thereafter, a series of correspondence ensued with the
appellant on matters like, alleged non-receipt of any formal
work order (on 11.06.2014); non-receipt of any format of
the Bank Guarantee (on 13.06.2014); request for a ‘No
Objection Certificate’ for obtaining new connection from
Calcutta Electric Supply Corporation Ltd. (on 26.06.2014);
problems with the execution like, non-matching of the unit
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code numbers with the hoardings or the non-matching of
locations; existence of same unit code for different
locations, rendering the commencement of work incapable
(letter of 26.06.2014) and existence of lesser hoardings out
of the 250 street hoardings (letter of 07.07.2014).
5. The Corporation, by its letter dated 08.07.2014,
demanded payment for the month of June. Thereafter, the
appellant wrote a letter of 19.07.2014 stating that till date
they have identified 200 numbers of street hoardings out
of the 250 allotted and sought for a joint inspection to
identify the rest of them. At this stage, the Corporation
issued a letter of 10.09.2014 stating that there was no
reason why the appellant was insisting for the Bank
Guarantee Format since Bank Guarantee was not the
mode of payment. According to the Corporation, the bills
for 5 clusters of Rs. 4,62,67,500/- (for only July to
September, 2014) had not been paid in spite of service of
the bill on 08.07.2014. The Corporation also mentioned
that in the joint inspection the appellant’s men failed to
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cover all the areas and thereafter, the appellant was asked
to submit a list of allotted locations which, according to
the Corporation, the appellant had not furnished. The
appellant was warned that in case the payment as
demanded was not paid, steps as per the tender clauses
would be taken.
6. When the matter stood thus, the appellant wrote a
letter on 14.11.2014 setting out all the earlier
correspondence and the grievances raised by them and
ultimately praying that they be granted diminution,
reduction and/or adjustment of the license fee. They
prayed that their demand for 174 hoardings be confirmed
so that they could make the payment. The Corporation
served a memo dated 06.12.2014 setting out that already
a notice of 20.11.2014 was served demanding payment of
8,16,15,870/- up to December, 2014 but the same has not
been cleared. The appellant was asked to appear on
12.12.2014 to show cause why the allotment of hoarding
shall not be cancelled. On 28.02.2015, a Show Cause
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Notice was issued asking the appellant to show cause why
the appellant’s allotment be not terminated as dues to the
tune of Rs. 10,28,52,918/- plus interest had not been
cleared.
7. In this scenario, on 29.07.2015, a notice was
published in English Daily “The Times of India” Kolkata
stating that the appellant had been blacklisted from
participating in any advertisement in the city of Kolkata.
However, on a challenge made in Writ Petition No. 960 of
2015, on 04.08.2015, a submission was made to the Court
by the learned senior counsel for the Corporation that the
decision of the blacklisting of appellant was to be
withdrawn and that the Corporation would proceed with
the matter in accordance with law after providing
opportunity of hearing. The Writ Petition was disposed of.
8. The appellant had earlier filed Writ Petition No. 261 of
2015 challenging the Show Cause Notice of 28.02.2015.
The learned Single Judge dismissed the Writ Petition on
04.03.2015. An appeal bearing APOT No. 89 of 2015 was
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preferred along with GA No. 782 of 2015. The Appeal and
th
G.A. were disposed of by an order of 24 August 2015
recording the submissions of the Learned Additional
Advocate General appearing for the Corporation and
disposing of the matter in the following terms:-
“Due to typographical errors in the show cause
th
notice dated 28 February, 2015, the learned
Additional Advocate General very fairly submitted
he is not pressing this show cause notice but the
appropriate proceedings shall be taken before the
Arbitrator.”
9. Thereafter, the Corporation issued a Show Cause
Notice dated 27.08.2015 to the appellant, stating that as
on the said date Rs. 16,84,34,431/- along with interest is
due and payable towards license fee/advertisement tax.
The Show Cause Notice also alleged that the appellant had
failed to execute the agreement for street hoardings, which
was issued on 29.11.2014 and failed to submit the bank
guarantee which was issued on 27.09.2014 and it also
alleged that the appellant had illegally shifted several
hoardings without the consent of the authority. The show
cause notice asserted that in spite of repeated requests
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and/or reminders, the appellant had failed to make
payment and refused and/or neglected to perform the
obligations as per the terms and conditions of the tender.
The Show Cause Notice further clearly alleged as under:
“In view of the aforesaid breach of the terms and
conditions of the tender, you are requested to file a
show cause as to why befitting action to blacklist
you from participating in any tender process should
not be taken all (sic.) you make the outstanding
payment and comply with the terms and conditions
of the tender. You are required to submit your reply
within 15 days from the date of Receipt of this letter,
failing which the authority will take appropriate
decision in accordance with law.”
10. By its reply of 15.09.2015, the appellant responded
to the Show Cause Notice. The appellant mentioned
therein that the tender document did not empower the
Corporation to determine the alleged breach on the part of
the company arising out of the contract; that in view of the
submission made by the Corporation before the Division
Bench, it is only the arbitrator in terms of Clause 18 who
can decide the dispute mentioned in the Show Cause
Notice of 27.08.2015; that Corporation is a party to the
proposed arbitration proceeding and it cannot usurp the
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power of the arbitrator; that the decision to blacklist the
appellant without recourse to arbitration proceeding is
illegal and that any decision to blacklist before the decision
of the arbitrator would be prejudging the alleged guilt
without deciding the issue. The appellant prayed that the
Show Cause Notice be not given effect to till the disposal
of the arbitration proceeding.
11. It further appears that by notice dated 05.10.2015,
the appellant invoked clause 18 of the tender document
and sought reference to the Joint Municipal Commissioner
as arbitrator.
Debarment Order:
12. By an order of 02.03.2016, the Corporation debarred
the appellant from participating in any tender for a period
of five years or till the date of exoneration of the company
from the allegation of negligent performance/action and
also of nonpayment of huge amount or till the date of
payment of entire dues with interest under the direction of
any authority/forum/court, whichever is later. The order,
8
after recording the history of the dispute and after noticing
the fact that at the hearing given, the company took the
same plea as stated by them in their reply, observed as
under:-
“… …. The company had alleged that it could find only
174 hoarding out of 250 hoardings but the company
th
in their letter dated 14 November, 2014 stated, inter
alia, that they were able to find 200 street hoarding
including 26-V-shaped. The company cannot take
such plea particularly when the display
sites/hoardings were specified in the lists under
annexure-I, Il & III to the tender notice. The
description of works under clause-2 of the tender
notice clearly stated that the street hoarding in the
annexure would be allotted in "As in where is basis".
The company after having understood the scope and
effect of the terms and condition of the notice the offers
which were accepted by the authorities. The bills for 5
clusters amounting to Rs.4,58,97,360/- had already
been served. The company was informed of its failure
to pay the sum of Rs.4,58,97,360/- for the period from
July 2014 to September 2014. The company paid part
amount for 55 nos. of hoarding as against the said
demand for the said quarter.
The company failed to mention the unit code on the
allotted street hoarding and the company did not
adhere to the instruction as made in this respect by
writing letters on repeated occasions.
Clause-2.1 as incorporated in the tender notice is
redundant in respect of the hoardings already
in-existence since such hoardings remain fitted with
the provision for supply of electricity. In fact, no
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objection certificate is not required from the KMC in
respect of the existing hoardings. All that is necessary
is for confirmation of the change of the name of the
user/agency. It is on record that the company
continued to display the advertisement in the
hoardings without requiring the no objection
rd
certificate from the KMC until 3 March 2015 when a
letter was issued in this respect. There is no document
to show that the company applied to the CESC for
electric connection and the CESC required no
objection certificate from the KMC. It is on record that
st
the contract period commenced from 1 June 2014
and hence there was no cogent reason to write the
letter for No Objection Certificate after about 8
months. No application to the CESC in the name of the
petitioners for the purpose illuminated street hoarding
was submitted to the concerned authorities. The
company used the supply of Electricity without
requiring to inform the KMC AND EACH AND EVERY
HOARDING was found illuminated during inspection
failed to obtain the interim order as prayed for
preferred the appeal being APOT No. 290 of 2015 and
an application being G.A. No. 2374 of 2015 was filed
in connection with the said appeal. The Hon'ble
appeal court while dismissing the appeal and also the
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application by an order dated 3 August 2015 was
pleased to observe that there was no urgency in the
matter in view of pendency of the writ petition. It was
also observed that if the appellants were aggrieved in
any manner with respect to the contract it was
necessary for them to invoke arbitration clause.
The company earlier filed the writ petition being W.P.
No.261 of 2015 relating to the notice to show cause
th
dated 28 February 2015. The company was asked to
show cause why the allotment should not be
terminated for not clearing the dues amounting to Rs.
10,28,52,918/- as then calculated plus interest to
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take defense upon certain facts in the written
argument. I am not fully convinced and/or satisfied
with the stand and/or explanation for several reasons
and/or ground as stated hereinbefore. It appears to
me that the company did not have the financial
capacity to have the display of advertisement rights in
5 clusters and as such the company started creating
problems on one plea to another since after obtaining
the allotment of Sites. The company in one hand
stopped the KMC to allot the said site to others and on
the other hand itself stopped the due payment for 5
clusters. The KMC has thus suffered in both counts.
Moreover the company has made an attempt to set up
a bad example to others having interest to enjoy the
advertisement rights.
That being the position the KMC has no alternative but
to blacklist the company for gross negligent action.
The company is therefore debarred from participating
in any tender to have the award of contract for a period
of 5 years or till the date of exoneration of the company
from the allegation of negligent, performance/action
and also of nonpayment of huge amount or till the date
of payment of entire dues with interest under the
direction of any authority/forum/court whichever is
later.”
13. In the meantime, it appears that in August, 2016, the
appellant also filed a claim before the arbitrator claiming
an award for Rs. 19,81,60,400/-. At the hearing before us,
it was submitted that the arbitrator Justice (Retd.)
Narayan Chandra Sil, who ultimately heard the matter,
passed an award on 26.04.2024 awarding the claimant a
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sum of Rs. 2,23,14,565/- after excluding the set off
amount of Rs. 78,03,435/- along with interest of 8% per
annum from the date of the award till realization. This
statement is reiterated in the written submissions. We
were also given a copy of the award. The respondent has
not disputed the said fact.
Proceedings in the High Court:
14. The appellant also filed a Writ Petition, namely, Writ
Petition No. 6616(W) of 2016 challenging the order of
02.03.2016. The learned Single Judge of the High Court
while setting aside the order of 02.03.2016 held as under:
“It is well settled by the above authorities that
blacklisting is a civil consequence. The rules of natural
justice have to be scrupulously followed. This denotes
that proper reasons have to be given. The reasons,
should have suggested that public interest would be
affected if the writ petitioner was continued to be
awarded contracts by the respondent Corporation. Or it
was to be established that the writ petitioner was a
dishonest business organisation, or irresponsible or
wholly lacking in business integrity. The government or
a government agency like the respondent-Corporation
could not blacklist the writ petitioner without assigning
these reasons or reasons akin thereto. There is a civil
dispute between the parties. The matter has gone to
arbitration. At best, the writ petitioner can be accused of
taking the contract, not fully paying for it and not
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performing it. The respondent Corporation has a
monetary claim against the writ petitioner. It does not
appear that the writ petitioner has made payment of any
significant part of the contract price. It is astonishing
that the respondent Corporation did not terminate the
contract within the contract period and award hoardings
to another party when the writ petitioner made a breach
of the payment condition to pay the quarterly licence fee
in advance. It waited till after the expiry of the contract
th
period on 30 June, 2015. Thereafter, they proceeded
to show cause the writ petitioner. This shows
considerable fault on the part of the respondent
Corporation. It also goes to indicate that expressly or
impliedly the respondent Corporation had accepted the
alleged breach of contract made by the petitioner.
Moreover, the defence of the writ petitioner in their
written notes of argument is that 174 hoardings which
were awarded to them were "non-lucrative". As the
respondent Corporation did not issue a no objection
certificate, CESC Limited could not give permission to
light the hoardings. The writ petitioner could not put
them to any use. If this is the defence raised by the writ
petitioner it could not be cast aside as one totally devoid
of any merit. Therefore, following the ratio laid down by
Mr. Justice Sinha in the case of B.S.N. Joshi & Sons Ltd.
v. Nair Coal Services Ltd and another reported in (2006)
11 SCC 548 blacklisting proceeding should not have
proceeded with because the writ petitioner in my opinion
raised a bona fide dispute. Furthermore, blacklisting
ought not to have been made until and unless this
dispute was resolved.
nd
For all the above reasons, the impugned order dated 2
March, 2016 is set aside. Only the issue of blacklisting
is decided by this order. Any observation regarding any
other dispute between the parties is to be taken as
tentative.”
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15. The matter was carried in Appeal by the Corporation
and by the impugned order, the High Court has allowed
the same by holding that since the appellant was given a
hearing and since the order of 02.03.2016 cannot be held
to be unreasonable or unfair or disproportionate, there
existed sufficient reasons for debarring the appellant. So
holding, the Appeal was allowed. The appellant aggrieved
is before us in Appeal. This Court while issuing notice in
the matter by its order of 27.04.2018 stayed the operation
of the impugned judgment.
Contentions:
16. We have heard Mr. P.S. Datta, learned senior counsel
for the appellant and Mr. Sujoy Mondal, learned counsel
for the respondent. We have also perused the written
submissions filed by the appellant. The respondent has
not filed any written submissions.
17. The learned senior counsel for the appellant contends
that the Corporation could at best have imposed only a
‘penalty’ for making late payments or in the case of default
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of payments under clause 9 and there could not have been
blacklisting; that blacklisting can be only made when there
was deviation of clauses 2.8, 11 & 14 and that the Show
Cause Notice precisely setting out why the blacklisting was
to be imposed need to have been given; that the grounds
of blacklisting are not the one stated in clauses 2.8, 11 &
14; that the order of blacklisting was passed during the
pendency of the arbitration proceedings; that the issues
relating to blacklisting were akin to the facts in issue
before the arbitration; that the Corporation has failed to
prove gross misconduct or irregularities or fraud involving
of any element of public interest; that the learned Single
Judge was right in setting aside the order of blacklisting;
that the Corporation is guilty of having not acted fairly and
reasonably by not facilitating the appellant to perform his
contractual right; that the Corporation despite the
repeated undertaking before the High Court for taking
resort to arbitration has deliberately issued the order of
blacklisting and that any and every act of alleged breach
15
of contract would not ensue blacklisting.
18. In support of their submission, the appellant relied
on B.S.N. Joshi & Sons Ltd. vs Nair Coal Services Ltd.
& Ors. (2006) 11 SCC 548 . The appellant also assailed
the judgment of the Division Bench by contending that the
Division Bench failed to consider that there was no
element of violation of public interest involved in the
conduct of the appellant and in fact the Corporation was
guilty of having not acted fairly and reasonably and that
the Division Bench has completely overlooked this aspect.
The appellant further contended that the order of
blacklisting was disproportionate and contrary to the
judgment in Kulja Industries Ltd. vs Chief General
Manager Western Telecom Project BSNL & Ors. (2014)
14 SCC 731 .
19. The learned counsel for the Corporation defended the
order of blacklisting as well as the judgment of the Division
Bench and prayed that there was no case for interference
by this Court.
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20. We have considered the submissions of the learned
counsels and perused the record.
Questions for consideration:
21. The following questions arise for consideration:
a. Whether in the facts and circumstances of the
case, the order of the Corporation dated 02.03.2016,
debarring the appellant for a period of five years is
valid and justified in the eye of the law?
b. If so, what reliefs is the appellant entitled to?
Reasons and conclusions:
22. Blacklisting has always been viewed by this Court as
a drastic remedy and the orders passed have been
subjected to rigorous scrutiny. In Erusian Equipment &
Chemicals Ltd. vs State of West Bengal & Anr. (1975)
1 SCC 70 , this Court observed that
“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….”
23. In Mr. B.S.N. Joshi (supra) , this Court held that
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“41. … When a contractor is blacklisted by a department
he is debarred from obtaining a contract, but in terms of
the notice inviting tender when a tenderer is declared to
be a defaulter, he may not get any contract at all. It may
have to wind up its business. The same would, thus,
have a disastrous effect on him. Whether a person
defaults in making payment or not would depend upon
the context in which the allegations are made as also the
relevant statute operating in the field. When a demand
is made, if the person concerned raises a bona fide
dispute in regard to the claim, so long as the dispute is
not resolved, he may not be declared to be defaulter.”
(Emphasis supplied)
24. This Court in Kulja Industries Ltd. (supra) after
setting out the legal position governing
blacklisting/debarment in USA and UK held that:
“25. Suffice it to say that “debarment” is recognised and
often used as an effective method for disciplining deviant
suppliers/contractors who may have committed acts of
omission and commission or frauds including
misrepresentations, falsification of records and other
breaches of the regulations under which such contracts
were allotted. What is notable is that the “debarment” is
never permanent and the period of debarment would
invariably depend upon the nature of the offence
committed by the erring contractor.
26. In the case at hand according to the respondent
BSNL, the appellant had fraudulently withdrawn a huge
amount of money which was not due to it in collusion
and conspiracy with the officials of the respondent
Corporation. Even so permanent debarment from future
contracts for all times to come may sound too harsh and
heavy a punishment to be considered reasonable
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especially when (a) the appellant is supplying bulk of its
manufactured products to the respondent BSNL, and (b)
the excess amount received by it has already been paid
back.”
25. What is significant is that while setting out the
guidelines prescribed in USA, the Court noticed that
comprehensive guidelines for debarment were issued there
for protecting public interest from those contractors and
recipients who are non-responsible, lack business
integrity or engage in dishonest or illegal conduct or are
otherwise unable to perform satisfactorily. The illustrative
cases set out also demonstrate that debarment as a
remedy is to be invoked in cases where there is harm or
potential harm for public interest particularly in cases
where the person’s conduct has demonstrated that
debarment as a penalty alone will protect public interest
and deter the person from repeating his actions which
have a tendency to put public interest in jeopardy. In fact,
it is common knowledge that in notice inviting tenders, any
person blacklisted is rendered ineligible. Hence,
blacklisting will not only debar the person concerned from
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dealing with the concerned employer, but because of the
disqualification, their dealings with other entities also is
proscribed. Even in the terms and conditions of tender in
the present case, one of the conditions of eligibility is that
the agency should not be blacklisted from anywhere.
26. In other words, where the case is of an ordinary
breach of contract and the explanation offered by the
person concerned raises a bona fide dispute,
blacklisting/debarment as a penalty ought not to be
resorted to. Debarring a person albeit for a certain number
of years tantamounts to civil death inasmuch as the said
person is commercially ostracized resulting in serious
consequences for the person and those who are employed
by him.
27. Too readily invoking the debarment for ordinary cases
of breach of contract where there is a bona fide dispute, is
not permissible. Each case, no doubt, would turn on the
facts and circumstances thereto.
28. Examining the facts of this case from that perspective,
20
we find that the appellant, after the award of the tender,
has admittedly paid an amount of Rs. 3,71,96,265/-,
though, according to the Corporation, the outstanding
amount as on the date of the debarment was Rs.
14,63,24,727/-. However, as would be clear from the facts
discussed hereinabove, right from the inception there have
been issues between the appellant and the Corporation
with regard to the fulfilment of the reciprocal obligations
in the bid document. There has been exchange of
correspondence between the parties with each side
blaming the other for not performing the reciprocal
obligations. While the appellant had a case with regard to
the non-issuance of work orders; non-receipt of formal
format of bank guarantee; refusal of No Objection
Certificate for obtaining connection from the Calcutta
Electric Supply Corporation Ltd.; existence of only 200 out
of 250 allotted street hoardings and so on demonstrating
breach of obligations by the Corporation, the Corporation
had a case that Bank Guarantee was not the mode of
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payment and as such there was no reason to insist on
Bank Guarantee; that in the joint inspection the
appellant’s men failed to cover all the areas and thereafter
when appellant was asked to submit a list of allotted
location, the appellant failed to furnish the same and
further there was huge default on the part of the appellant.
29. Even in the order dated 02.03.2016 by which the
appellant was debarred for a period of five years, the
reason given is that the tender notice had clearly stated
that the street hoardings in the annexures would be
allotted on ‘as is where is’ basis; that the company having
understood the scope and effect of the terms and
conditions of the notice accepted the award; that, ‘No
Objection Certificate’, is not required in respect of the
existing hoardings; that there was no document to show
that the company had applied to the Calcutta Electric
Supply Corporation Ltd. for connection and that it
appeared to the Corporation that the company did not
have the financial capacity to pay and as such the
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company was creating problems on one pretext or the
other since obtaining the allotment of sites. The order also
stated that the appellant had set up a bad example to
others having interest to enjoy the advertisement rights.
30. All these reasons fall far short of rendering the
conduct of the appellant in the present case, so abhorrent
as to justify the invocation of the drastic remedy of
blacklisting/debarment. The appellant very clearly has
been subjected to a disproportionate penalty. The
Corporation has lifted a sledgehammer to crack a nut. We
disapprove of the said course of action on the facts of this
case.
31. The exchange of correspondence resulted in
invocation of the arbitration and today it is undisputed
that by an award of 26.04.2024, the appellant has been
awarded after due set off Rs. 2,23,14,565/- with 8%
interest per annum under the very same dispute. We are
not here concerned with the correctness of the award.
What it does signify is that there was a bona fide
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contractual dispute between the parties and we hold that
the learned Single Judge was right in setting aside the
order of debarment on the ground that there was a bona
fide civil dispute between the parties.
32. What renders the matter a fortiori is that when APOT
No. 89 of 2015 along with GA 782 of 2015 filed against the
order of the learned Single Judge dismissing Writ Petition
No. 261 of 2015, the counsel for the Corporation had
submitted to the Court that the Show Cause Notice was
being withdrawn at that stage and appropriate proceeding
was to be taken before the arbitrator. In spite of the
statement, the Corporation did not invoke arbitration.
33. The appellant invoked arbitration and no doubt a
counter claim was filed by the Corporation before the
arbitrator. Ultimately, the counter claim was decreed for
Rs. 78,03,435/- and the claim was decreed for Rs.
3,01,18,000/- and after ordering set off, an award has
been passed for Rs. 2,23,14,565/-.
34. The issues framed by the arbitrator also indicate that
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the assertions and counter assertions of the appellant and
the Corporation were clearly in the nature of a bona fide
civil dispute only to demonstrate that aspect, the issues
are extracted herein below:
“1. Is the arbitral proceeding barred by reasons of accord
and satisfaction?
2. Did the respondents fail to allot 250 street hoardings
in terms of tender document?
3. Did the respondents fail and neglect to provide clear
sites to the claimants by intervening and removing illegal
hoardings for obstructions at the allotted sites?
4. Did the respondents issue ‘no objection certificate' to
the claimants for getting new connections from the
CESCP?
5. Was there any mis-match of unit code and the
location hoardings?
6. Was it established and accepted in joint inspection by
the KMC that only 200 street hoardings out of 250 could
be located?
7. Did the claimants fail to deposit the requisite amount
in advance under the contract for which the KMC, the
respondent, suffered substantial loss in revenue?
8. Was there any obligation of the respondents to identify
the location of the street hoardings as the agreement was
on 'as is where is basis’?
9. Did the parties discharge their respective liabilities
under the contract and if so to what extent?
10. Is the claimant entitled to the claim amount as
claimed?
11. Are the respondents entitled to the amount of
counter-claim as claimed in their statement of counter-
claim?
12. To what other relief or reliefs the parties are
entitled?”
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35. The Division Bench has, in our opinion, not
appreciated the case in its proper perspective. Merely
saying that the blacklisting order carried reasons is not
good enough. Do the reasons justify the invocation of the
penalty of blacklisting and is the penalty proportionate,
was the real question.
36. The Division Bench has observed that blacklisting is
a business decision by which the party affected by the
breach decides not to enter into any contractual
relationship with the party committing the breach. It also
observed that between two private parties the right to take
any such decision is absolute and untrammeled by any
constraints whatsoever. The observations are too
sweeping in their ambit and wholly overlook the fact that
the respondent-Corporation is a statutory body vested
with the duty to discharge public functions. It is not a
private party. Any decision to blacklist should be strictly
within the parameters of law and has to comport with the
principle of proportionality.
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37. The Division Bench having noticed the fact that any
decision to blacklist will be open to scrutiny on the anvil
of the doctrine of proportionality has failed to apply the
principle to the facts of the case in the correct perspective.
The Division Bench has also failed to correctly appreciate
the ratio of the decision in B.S.N. Joshi (supra) .
38. There has been no enquiry by the Division Bench as
to whether the conduct of the appellant was part of the
normal vicissitudes in business and common place
hazards in commerce or whether the appellant had
crossed the rubicon warranting a banishment order, albeit
for a temporary period in larger public interest.
39. One such case where this Court found the Lakshman
Rekha to be breached by the party blacklisted was Patel
Engineering Limited vs. Union of India and Another ,
(2012) 11 SCC 257. In that case, while upholding the
order of blacklisting, this Court recorded the following:
“33. From the impugned order it appears that the second
respondent came to the conclusion that: (1) the
petitioner is not reliable and trustworthy in the context
of a commercial transaction; (2) by virtue of the
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dereliction of the petitioner, the second respondent
suffered a huge financial loss; and (3) the dereliction on
the part of the petitioner warrants exemplary action to
“curb any practice of ‘pooling’ and ‘mala fide’ in future”.
34. We do not find any illegality or irrationality in the
conclusion reached by the second respondent that the
petitioner is not (commercially) reliable and trustworthy
in the light of its conduct in the context of the
transaction in question. We cannot find fault with the
second respondent's conclusion because the petitioner
chose to go back on its offer of paying a premium of Rs
190.53 crores per annum, after realising that the next
bidder quoted a much lower amount. Whether the
decision of the petitioner is bona fide or mala fide,
requires a further probe into the matter, but, the
explanation offered by the petitioner does not appear to
be a rational explanation.
36. …. The dereliction, such as the one indulged in by
the petitioner, if not handled firmly, is likely to result in
recurrence of such activity not only on the part of the
petitioner, but others also, who deal with public bodies,
such as the second respondent giving scope for
unwholesome practices…..”
40. Equally so in Kulja Industries (supra) , the party
blacklisted was alleged to have fraudulently withdrawn a
huge amount of money which was not due to it in collusion
and conspiracy with officials of the respondent
Corporation.
41. Patel Engineering (supra) and Kulja Industries
(supra) bring out the contrast between cases of that ilk
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and others, like the case in question. It is this distinction
the Division Bench has grossly overlooked which, however,
the learned Single Judge had rightly brought to the fore.
42. For all the reasons set out hereinabove, we set aside
the impugned judgment of the Division Bench dated
21.06.2017 passed in M.A.T. No. 277 of 2017 and restore
the judgment of the learned Single Judge. The result will
be that the Writ Petition No. 6616(W) of 2016 filed by the
appellant before the High Court at Calcutta would stand
allowed and the order of blacklisting dated 02.03.2016
would stand set aside. The Appeal is, accordingly, allowed.
No order as to costs.
………........................J.
[ B.R. GAVAI ]
………........................J.
[ SANJAY KAROL ]
……….........................J.
[ K. V. VISWANATHAN ]
New Delhi
07 August, 2024.
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