Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
2026 INSC 312
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). OF 2026
ARISING OUT OF SLP (C) NO. 23858 OF 2025
M/S A.K.G. CONSTRUCTION AND DEVELOPERS
PVT. LTD ...APPELLANT(S)
VERSUS
STATE OF JHARKHAND & ORS. …RESPONDENT(S)
WITH
CIVIL APPEAL NO(S). OF 2026
ARISING OUT OF SLP (C) NO. 22669 OF 2025
J U D G M E N T
1. Leave granted.
2. While exercising judicial review over administrative actions of the
State and its instrumentalities in relation to contracts provisioning clauses
and rules relating to termination and/or blacklisting , Courts must apply
distinct standards of legality, rationality and proportionately. Such an
approach is compelling as conditions for imposing such measures, as also
Signature Not Verified
Digitally signed by
Jayant Kumar Arora
the consequences of such actions, have differing gravity.
Date: 2026.04.02
16:49:36 IST
Reason:
Page 1 of 18
3. Upon careful consideration of the impugned State action, which
terminates the contract and blacklists the appellant without meaningful
distinction, we hold that the termination order is substantiated and
justified. However, the blacklisting order suffers from patent infirmities: it
evinces no application of mind, disregards the mandatory precept of audi
alteram partem , and fails to precede with a show-cause notice requiring
the contractor to demonstrate why such drastic action should not be taken.
Blacklisting, being stigmatic and exclusionary in nature, cannot be
imposed mechanistically but must comport with principles of natural
justice and reasonableness.
4. For the reasons detailed hereafter, we uphold the order of
termination and the impugned judgement and review order affirming the
same, but set aside the decision to blacklist the appellant.
5. Having upheld the order of termination, we were of the opinion that
the assumed logical consequence of blacklisting is neither supported by
application of mind nor followed by a clear notice proposing blacklisting.
For the reasons to follow, we set aside the order of blacklisting. However,
in the facts and circumstances of the case, due to passage of time, we
have suitably moulded the relief and directed that the order of blacklisting
shall not continue for five years as directed by the Department but will
cease to operate from the date of our judgment.
Page 2 of 18
Facts
6. The appellant, a registered contractor with the Water and Sanitation
Department was contracted for construction of an Elevated Service
Reservoir (ESR) by issuance of a Letter of Acceptance (LOA) on
06.03.2023. During the subsistence of the contract, on 01.06.2024, the
top dome of the reservoir collapsed. Though it was justified as being a
result of an unexpected cyclone, the appellant offered to reconstruct it at
own expense. However, the Department issued a show cause notice
dated 04.06.2024, seeking explanation as to why action should not be
taken for the negligence and bad quality of work. The contents of the show
cause notice are as follows -
“(PURPOTED SHOW CAUSE)
GOVERNMENT OF JHARKHAND
DRINKING WATER & SANITATION DEPARTMENT
Letter No. 4/A.V.-01-1019/2024- 1311
From,
Navneet Kumar
Under Secretary to the Government.
To,
M/s. A.K.G. Construction & Developers
Pvt. Ltd. Ranchi.
Ranchi, Date- 4/6/24
Subject: Regarding submitting clarification.
Context: Letter No. 727 of Executive Engineer, Drinking Water and
Sanitation Division, Jhumritilaiya, dated 01.06.2024.
Sir,
As per the directions, the department received information about
collapse of the under-construction water tower in Neemadhi village
Page 3 of 18
under Koderma-Demchonch Jaynagar Mega Rural Water Supply
Scheme through the relevant letter on the above subject.
The collapse of the under-construction water tower proves
that quality was not taken care of in the construction of the water
tower.
Due to your not doing quality work as per the agreement in
the construction of the water tower, the water tower collapsed due
to which the image of the department got tarnished.
Therefore, it is directed by attaching a copy of the letter
describing tire incident that why action should not be taken against
you as per rules for negligence shown by you and not doing quality
construction and, ensure to submit your explanation within 03
(three) days. In case of not receiving the explanation on time, it will
be considered that you have nothing to say regarding the allegation
and the department will be free to take unilateral action.
Translation- As Aforesaid
Yours sincerely,
Sd./-Illegible
04/06/2024
(Navneet Kumar)
Under Secretary to the Government.”
7. Following the show cause notice, multi-level enquiries were
conducted. Initially, a three-member committee gave its report on
06.06.2024. Thereafter, the Superintending Engineer also examined the
matter in detail. These enquiries drew inputs from Birsa Institute of
Technology, Sindri and also IITs of Delhi, Madras and Bombay. Upon
receiving concurrent reports indicating negligence on part of the appellant,
respondent no. 3, Chief Engineer, Drinking Water and Sanitation
Department, passed the termination cum blacklisting order dated
23.08.2024. The order containing the reasons for termination and
blacklisting is reproduced below for ready reference;
Page 4 of 18
“GOVERNMENT OF JHARKHAND
DRINKING WATER & SANITATION DEPARTMENT
Order No.-4/A.V.-01-102l/2024-20(CDO), Ranchi, Date-
23/08/2024
ORDER
It was informed by letter no. 727 dated 01.06.2024 of Executive
Engineer, Drinking Water and Sanitation Division, Jhumritilaiya that
the water tower under construction in Neemadhi village under the
work of Koderma-Domchonch Jaynagar Large Rural Water Supply
Scheme, which is allotteed to the contractor M/s A.K.G.
Construction & Developers Pvt. Ltd., Ranchi, collapsed on
01.06.2024.
In the light of the above, the contractor was asked for clarification
by departmental letter no. 1311 dated 04.06.2024, in the light of
which the contractor submitted clarification through letter no.
AKG/24-25/26 dated 06.06.2024 in which the contractor has
reported that no laxity has been shown in the construction of the
under-construction water tower and the under-construction water
tower fell due to natural disaster/cyclonic storm. In the light of the
above, by letter no. 663 (CDO) dated 21.06.2024 of this office, the
Superintending Engineer, Drinking Water and Sanitation Zone,
Hazaribagh was directed to review the clarification received from
the contractor point by point and provide a report with his clear
opinion. The opinion was provided by letter no. 545 dated
21.06.2024 of the Superintending Engineer, Drinking Water and
Sanitation Zone, Hazaribagh in which it is reported that the work
described has not been done as per the approved Design &
Drawing and the quality of the overall work has not been taken care
of.
In the matter described by the department, an inquiry was
conducted by a three-member inquiry committee. The inquiry
committee submitted the inquiry report through departmental G.S.P.
No.-283 dated 06.06.2024 in which it is reported that negligence
was shown in getting the construction work of the water tower
completed as per the approved Design & Drawing and quality was
not taken care of, due to which the incident of collapse/demolition
of the water tower occurred. Thus, the contractor is
responsible/guilty for negligence and negligence in getting the
quality work done.
The contractor informed the concerned Executive Engineer through
his letter-AKG/24-25/23 dated-01.06.2024 that he is ready to
construct ESR again at his own expense in place of the demolished
ESR under construction. It was never appropriate for him to
construct ESR again without departmental order. This act of his
reflects an attempt to hide his wrongdoings.
The department condemns this modus operandi of the contractor.
Page 5 of 18
It is clear from the above that the contractor got low quality
construction work done in the work of the scheme, which tarnished
the image of the department and created obstacles in achieving the
objectives of the department. This is a clear violation of rule number-
10.1.8 and 10.1.15 of the Contractor Registration Rules 2012.
Therefore, after review by the department, the explanation of the
contractor is rejected.
Therefore, after due consideration by the department in the light of
Rule No. 10.1.8 and 10.01.15 of Contractor Registration Rules
2012, the contractor M/s A.K.G. Construction & Developers Pvt.
Ltd., Panna Enclave, Flat No-202, Kadru, Ranchi-834002, e-mail:
ketan.kumar007@gmail.com is blacklisted for 5 (five) years with
immediate effect and in this context, the following order is given in
the light of Rule No. 10.3 and 10.4 of Contractor Registration Rules
2012:-
2. It is decided to stop all the works being done by the contractor
from the date of issuance of the order and to confiscate the security
deposit of all the works. Also, the concerned regional Chief
Engineer/Superintending Engineer/Executive Engineer will ensure
to take appropriate action as per the requirement to complete the
remaining work being done by the contractor.
3. The registration of the contractor in all categories in the
department is cancelled with immediate effect.
4. The proposal has received the approval of the Hon'ble
Departmental Minister.
(Prabhat Kumar Singh)
Chief Engineer, C.D.O
Date: 23/08/2024”
8. Aggrieved, the appellant filed an appeal, which came to be
dismissed vide order dated 05.12.2024 of the Appellate Authority cum
Principal Secretary, Drinking Water and Sanitation Department. The
appellant filed a writ petition challenging orders dated 23.08.2024 and
05.12.2024. By impugned judgement and order dated 07.02.2025, the
High Court dismissed the writ petition, while also imposing a cost of Rs. 2
lakhs on the appellant. It was held that that the corroborated findings of
the enquiries conducted, as also the appellant’s own admission in the form
Page 6 of 18
of offering to reconstruct the entire ESR at its own cost, leads to a logical
inference of negligence in carrying out the construction as per the
approved design and drawings. It was also held that the orders impugned
were neither illegal nor arbitrary as proper opportunity was given to the
appellant at every stage.
9. The appellant sought a review of the decision arrived by the High
Court on self-same grounds, which naturally came to be dismissed by the
High Court vide impugned order dated 04.08.2025. Thus, the present
appeals have been filed against the main judgement as well as the review
order.
Submissions
10. Mr. M.S. Ganesh, learned senior counsel appearing on behalf of the
appellant, would submit that the termination as well as the blacklisting are
illegal and arbitrary. He would submit that constitution of the three-
member committee, followed by its report and subsequent reports, were
without giving any opportunity to the appellant. He would also submit that
the arbitrariness is writ large as the decision to blacklist had the effect of
terminating all subsisting contracts.
11. Mr. Kumar Anurag Singh, learned counsel for the respondent
Department would submit that Clause 59 of the General Conditions of
Contract (GCC), dealing with termination of contract does not provide for
Page 7 of 18
a prior notice. He would also rely on Rule 10 of the Contractor Registration
Rules, 2012, dealing with blacklisting, which mandates issuance of a show
cause notice before blacklisting a contractor upon misconduct. He would
submit that the show cause notice 04.06.2024 was specifically for purpose
of blacklisting the appellant, which according to him, is further cemented
by express use of the phrase “ why action should not be taken against it
as per the rules”. In view of the concurrent operation of GCC and the 2012
Rules, he submits that the common order of termination cum blacklisting
is compliant of all conditions and therefore legal and valid.
Analysis
12. The controversy revolves around a true and correct interpretation of
Clause 59 of GCC, relating to termination, and Rule 10 of 2012 Rules,
relating to blacklisting. The Clause and the Rule is reproduced herein for
ready reference.
13. Clause 59 of GCC is as follows -
“59.Termination
59.1. The Employer or the Contractor may terminate the Contract if the other
party causes a fundamental breach of the Contract.
59.2. Fundamental breaches of Contract include, but shall not be limited to
the following:
(a) The Contractor stops work for 28 days when no stoppage of work is
shown on the current Programme and the stoppage has not been
authorized by the Engineer;
(b) The Engineer instructs the Contractor to delay the progress of the Works
and the instruction is not withdrawn within 28 days;
Page 8 of 18
(c) The Employer or the Contractor is made bankrupt or goes into liquidation
other than for a reconstruction or amalgamation.
(d) The Engineer gives Notice that failure to correct a particular Defect is a
fundamental breach of Contract and the Contractor fails to correct it within
a reasonable period of time determined by the Engineer.
(e) The Contractor does not maintain a security which is required;
(f) The Contractor has delayed the completion of works by the number of
days for which the maximum amount of liquidated damages can be paid as
defined in the Contract data; and
(g) If the Contractor, in the judgment of the Employer has engaged in corrupt
or fraudulent practices in competing for or in executing the Contract.
For the purpose of this paragraph: "corrupt practice" means the offering,
giving, receiving or soliciting of anything of value to influence the action of a
public official in the procurement process or in contract execution.
"Fraudulent practice" means a misrepresentation of facts in order to
influence a procurement process or the execution of a contract to the
detriment of the Borrower, and includes collusive practice among Bidders
(prior to or after bid submission) designed to establish bid prices at artificial
non-competitive levels and to deprive the Borrower of the benefits of free
and open competition."
59.3. When either party to the Contract gives notice of a breach of contract
to the Engineer for a cause other than those listed under Sub Clause 59.2.
above, the Engineer shall decide whether the breach is fundamental or not.
59.4. Notwithstanding the above, the Employer may terminate the Contract
for convenience.
59.5. If the Contract is terminated the Contractor shall stop work
immediately, make the Site safe and secure and leave the Site as soon as
reasonably possible”
14. Rule 10 of Contractor Registration Rules, 2012 is as follows -
“10. BLACKLISTING
10.1 A contractor in person or any partner of a registered firm or any director
of a private public limited company or his technical staff or any of his
authorized representatives, registered in any of the above categories, may
be blacklisted for any of the following misconducts:
10.1.1 Creating law and order problem in Government office while receiving
tender documents, submitting tender documents or doing any work related
thereto.
10.1.2 Intimidating or assaulting concerned officer or employee.
10.1.3 If the contractor is found selling or misusing Government goods such
as cement, steel and pipes etc..
10.1.4 If convicted in any criminal activity.
Page 9 of 18
10.1.5 If wrong documents are submitted for registration under these rules.
10.1.6 In case of being banned or blacklisted by any
department/undertaking of the Government of India or any State
Government.
10.1.7 In case of violation of Rule 6.2 of these rules.
10.1.8 Failure to execute the work as per the agreement and prescribed
specifications.
10.1.9 In case of the contractor handing over his work to another
contractor or any person without departmental order (subletting).
10.1.10 No improvement is reflected in the conduct of the suspended
contractor.
10.1.11 Corrupting or attempting to corrupt the tender process.
10.1.12 indulging in malpractices likes bribery, corruption or fraud.
10.1.13 any such act which obstructs the achievement of the objectives of
the works department.
10.1.14 applying political pressure directly or indirectly.
10.1.15 doing work of poor quality.
10.1.16 directly or indirectly threatening or intimidating departmental
officers/employees.
10.1.17 not achieving physical targets in proportion to the time elapsed.
10.2 The blacklisted contractor will be debarred from working in any
Government Department / Undertaking in future and his registration will be
cancelled with immediate effect.
10.3 If a registered contractor is blacklisted in any one category in the light
of Rule 10.1, then the registration of the said contractor in all other
categories, if any, will also be deemed to be cancelled with immediate effect.
10.4 All the works being carried out by the blacklisted contractor in the
Department of Drinking Water and Sanitation, Jharkhand will be stopped
from the date of the order issued in the light of Rule 10.1, and the security
deposit of all the works will be forfeited and appropriate action will be taken
as per requirement to complete the remaining works.
10.5. Before blacklisting a contractor of a particular category, it will be
necessary to issue a show cause notice.
10.6 The order of blacklisting can be passed by the registration officer of the
concerned category or the officer under who's supervision/under whose
supervision the registration officer is working.
10.7 Against the penalty imposed, the contractor may file an appeal before
the departmental secretary within thirty days.
10.8 After approval by the government, the blacklisting order will be
issued by the concerned registration officer.”
Page 10 of 18
15. Before we proceed to consider the Rules relating to blacklisting and
its adverse consequences, we may state that it was made clear to Mr.
M.S. Ganesh, learned senior counsel for the appellant, that in view of the
clear findings of negligence as articulated in the order of termination, we
will not interfere with the decision of termination. As regards the
submission of Mr. M.S. Ganesh that the appellant did not have sufficient
opportunity to defend himself, notwithstanding the submission of Mr.
Kumar Anurag Singh that termination does not require prior notice, we are
of the opinion that the appellant had sufficient opportunity at the common
hearing for termination and blacklisting. Further, the appellant argued the
entire case before the Appellate Authority. Appellant also raised and
contested the case on merits before the Division Bench. Having examined
the contest and its due consideration all through, we are of the opinion
that the decision as regards termination is unimpeachable, on merits as
well as on the grounds of due process.
16. In so far as the order relating to blacklisting is concerned, we are of
the opinion that this issue requires close scrutiny and that will be
undertaken by reference to Rule 10 of the 2012 Rules.
17. A cursory reading of Rule 10 makes it evident that an order of
blacklisting has serious consequences, effecting not only the existing
contracts but also bars future business transactions for some years.
Page 11 of 18
Under Rule 10.3, if a registered contractor is blacklisted for any one
category as per Rule 10.1, then the registration of the said contractor in
all other categories, if any, will be deemed to be cancelled with immediate
effect. Upon such cancellation, under Rule 10.4, all the works carried out
by the blacklisted contractor in the department will be stopped from the
date of issuance of order under Rule 10.1. It also provides that the security
deposit for all the works will be forfeited.
18. The contractual conditions governing termination on the one hand
and those that relate to blacklisting on the other are distinct and will be
exercised independently. A decision of blacklisting is not automatic and
certainly not a logical consequence of a decision of termination. Even after
the Department decides to terminate the contract, there is still a choice of
exercising the power of blacklisting. These decisions operate in two
dimensions - past and subsisting for termination and future for blacklisting.
In other words, an order of blacklisting transcends the existing contract
and debars the contractor from contracts that could probably be executed
in the next five years. In view of the serious consequences, it is necessary
for the Department to issue a specific notice proposing blacklisting of a
contractor and call for an explanation as to why an order of blacklisting
should not be passed. This is exactly the purpose and object behind Rule
10.5.
Page 12 of 18
19. The requirement under Clause 10.5 is a clear case of legislative (in
this case subordinate legislation) incorporation of principles of natural
justice. This Court has time and again emphasised the need to adhere to
principles of natural justice while passing blacklisting orders, given the
grave consequences that follow. In Erusian Equipment & Chemicals Ltd.
1
v. State of West Bengal , it was observed that –
The blacklisting order does not pertain to any particular contract. The
“15.
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 blacklists are “instruments of coercion”.
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
Fundamentals of fair play require that the person concerned
satisfaction.
should be given an opportunity to represent his case before he is put on the
blacklist.”
20. In order to emphasise the requirement of a show cause notice
preceding an order of blacklisting, this Court in UMC Technologies Pvt Ltd
2
v. Food Corporation of India held that –
At the outset, it must be noted that it is the first principle of civilised
“13.
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.
1
(1975) 1 SCC 70. The principle in Eurasian Equipment has been reiterated by this Court in many
subsequent judgements such as Raghunath Thakur v. State of Bihar (1989) 1 SCC 229 , Gorkha Security
Services v. Govt. (NCT of Delhi), (2014) 9 SCC 105, etc.
2
(2021) 2 SCC 551.
Page 13 of 18
3
This Court in Nasir Ahmad v. Custodian General, Evacuee Property 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.
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,
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 .
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
. This privilege arises because it is
entering into government contracts
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 take 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.
Thus, from the above discussion
21. , 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.”
21. The judgment in M/S Techno Prints v. Chhattisgarh Textbook
4
Corporation & Anr. underscored the need for a detailed consideration of
the consequences of blacklisting right at the outset, that is, from the stage
of issuing of show cause notice. The Court held as follows –
“29. However, what is important for us to say is that when there are
guiding principles explained by this Court as to when & in what
circumstances a blacklisting order can be passed then, in our opinion
such principles should also be borne in mind by the Authority at the
3
Nasir Ahmad v. Custodian General, Evacuee Property, (1980) 3 SCC 1.
4
2025 INSC 236.
Page 14 of 18
time of issuing a show cause notice. We say so because in the facts of
a given case like the one on hand, on the face of which it could be said that
there was no good reason for the Authority to issue a show cause notice
calling upon the contractor why he should not be blacklisted. Why ask the
contractor to face the proceedings when applying the aforesaid principles,
the issue of show cause notice would be an empty formality. We are saying
all this keeping in mind the peculiar facts of this case.
30. Therefore, the Authority is expected to be very careful before issuing a
show cause notice. It is expected to understand the facts well and try to
ascertain what sort of violation is said to have been committed by the
contractor. As noted above, there is always an inherent power in the
Authority to blacklist a contractor. But possessing such inherent power and
exercising such power are two different situations and connotations. There
may be a power but there should be reasonable ground to exercise such
power.
31. To put it by way of an illustration, the Police has the power to arrest but
it is not necessary that in all cases arrest must be effected. The Police
should know whether at all arrest is necessary.
32. We may put it in a slightly different way. Take for instance, the show
cause notice in the present case is the final order of blacklisting. The
final order in any case cannot travel beyond the show cause notice.
Therefore, we take the show cause notice as the final order. Whether
it makes out a case for blacklisting? This should be the test to
determine whether it is a genuine case to blacklist a contractor or visit
him with any other penalty like forfeiture of EMD, recovery of damages
etc. We say so because once an order of blacklisting is passed the
same would put an end to the business of the person concerned. It is
a drastic step. Once the final order blacklisting the Contractor is
passed then the Contractor is left with no other option but to go to the
High Court invoking writ jurisdiction under Article 226 of the
Constitution and challenge the same. If he succeeds before the Single
Judge then it is well and good otherwise he may have to prefer a writ
. This again would lead to unnecessary
appeal or LPA as the case may be
litigation in the High Courts. The endeavour should be to curtail the litigation
and not to overburden the High Courts with litigations of the present type
more particularly when the law by and large is very well settled and there is
no further scope of any debate.”
22. Returning to the facts of the present case, at the outset, it is
apparent that the show cause notice dated 04.06.2024 does not purport
to be a show cause notice for blacklisting at all. It perhaps expects the
contractor to assume that it is for termination as well as for blacklisting.
Page 15 of 18
Even if we accept the submissions of Mr. Kumar Anurag Singh that, as
there is no provision for prior notice before termination, this show cause
notice must be taken to be for blacklisting, we are of the opinion that it still
falls short of the requirement of a proper show cause notice for
blacklisting. This is for the reason that as the decision to blacklist is
independent of the decision to terminate, the Department must
demonstrate application of mind before it takes the next step of
blacklisting the contractor, over an order of termination. Upon taking such
a decision, it must also issue a show cause notice calling upon the
contractor to explain why a consequential order of blacklisting should also
not be passed. The letter must be indicative of the proposed decision to
blacklist and the requirement of the contractor to respond to it. The show
cause notice dated 04.06.2024 falls short of these requirements. Similarly,
the final order of blacklisting, dated 23.08.2024, also does not list the
reasons as to why an order of blacklisting has become necessary.
23. The contractual relationship between the parties is governed by two
legal regimes. While GCC governs termination, the 2012 Rules govern
blacklisting. Proceedings for termination should not be conflated with
proceedings for blacklisting. In the latter action, what is at stake is the
future of the contractor. A blacklisting order assumes that the contractor is
an incorrigible entity, at least for some time to come, in this case such an
Page 16 of 18
assumption was intended to operate for five years. For giving effect to
such a premise, there has to be sufficient evidence, clear application of
5
mind and stronger adherence to principles of natural justice . The
blacklisting order dated 23.08.2004 falls short of this requirement and is
liable to be set aside.
24. As a consequence of our decision to set aside the blacklisting order,
we would have required the Department to issue a fresh show cause
notice indicative of the reasons as to why a blacklisting order is felt
necessary and to thereby call upon the contractor to show cause.
However, in view of the fact that the order of termination cum blacklisting
was passed on 23.08.2024, and since then almost more than one and a
half year has already passed, without there being a stay of the said order
in the meantime, we are of the opinion that the relief to be granted can
suitably be moulded by directing that the order of blacklisting will cease to
operate with immediate effect. This order will benefit the appellant more
than the Department, because directing issuance of a fresh show cause
notice will only lead to further litigation.
25. Having considered the matter in detail and taking into account the
unimpeachable material about the negligence of the appellant leading to
5
Kulja Industries Ltd. v. Chief General Manager, Western Telecom Project BSNL, (2014) 14 SCC 731; The
Blue Dreamz Advertising Pvt Ltd. & Anr. v. Kolkata Municipal Corporation & Ors, 2024 INSC 589, M/s Techno
Prints (supra).
Page 17 of 18
collapse of the top dome of the ESR, we are of the opinion that the order
of termination of all contracts is legal and valid. Civil Appeals to this extent
are dismissed. However, the decision of blacklisting of the appellant is
illegal, arbitrary and unreasonable. The declaration of blacklisting is set
aside, and shall cease to operate with immediate effect.
………………………………....J.
[ ]
PAMIDIGHANTAM SRI NARASIMHA
………………………………....J.
[ ALOK ARADHE ]
NEW DELHI;
APRIL 02, 2026.
Page 18 of 18
IN THE SUPREME COURT OF INDIA
2026 INSC 312
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). OF 2026
ARISING OUT OF SLP (C) NO. 23858 OF 2025
M/S A.K.G. CONSTRUCTION AND DEVELOPERS
PVT. LTD ...APPELLANT(S)
VERSUS
STATE OF JHARKHAND & ORS. …RESPONDENT(S)
WITH
CIVIL APPEAL NO(S). OF 2026
ARISING OUT OF SLP (C) NO. 22669 OF 2025
J U D G M E N T
1. Leave granted.
2. While exercising judicial review over administrative actions of the
State and its instrumentalities in relation to contracts provisioning clauses
and rules relating to termination and/or blacklisting , Courts must apply
distinct standards of legality, rationality and proportionately. Such an
approach is compelling as conditions for imposing such measures, as also
Signature Not Verified
Digitally signed by
Jayant Kumar Arora
the consequences of such actions, have differing gravity.
Date: 2026.04.02
16:49:36 IST
Reason:
Page 1 of 18
3. Upon careful consideration of the impugned State action, which
terminates the contract and blacklists the appellant without meaningful
distinction, we hold that the termination order is substantiated and
justified. However, the blacklisting order suffers from patent infirmities: it
evinces no application of mind, disregards the mandatory precept of audi
alteram partem , and fails to precede with a show-cause notice requiring
the contractor to demonstrate why such drastic action should not be taken.
Blacklisting, being stigmatic and exclusionary in nature, cannot be
imposed mechanistically but must comport with principles of natural
justice and reasonableness.
4. For the reasons detailed hereafter, we uphold the order of
termination and the impugned judgement and review order affirming the
same, but set aside the decision to blacklist the appellant.
5. Having upheld the order of termination, we were of the opinion that
the assumed logical consequence of blacklisting is neither supported by
application of mind nor followed by a clear notice proposing blacklisting.
For the reasons to follow, we set aside the order of blacklisting. However,
in the facts and circumstances of the case, due to passage of time, we
have suitably moulded the relief and directed that the order of blacklisting
shall not continue for five years as directed by the Department but will
cease to operate from the date of our judgment.
Page 2 of 18
Facts
6. The appellant, a registered contractor with the Water and Sanitation
Department was contracted for construction of an Elevated Service
Reservoir (ESR) by issuance of a Letter of Acceptance (LOA) on
06.03.2023. During the subsistence of the contract, on 01.06.2024, the
top dome of the reservoir collapsed. Though it was justified as being a
result of an unexpected cyclone, the appellant offered to reconstruct it at
own expense. However, the Department issued a show cause notice
dated 04.06.2024, seeking explanation as to why action should not be
taken for the negligence and bad quality of work. The contents of the show
cause notice are as follows -
“(PURPOTED SHOW CAUSE)
GOVERNMENT OF JHARKHAND
DRINKING WATER & SANITATION DEPARTMENT
Letter No. 4/A.V.-01-1019/2024- 1311
From,
Navneet Kumar
Under Secretary to the Government.
To,
M/s. A.K.G. Construction & Developers
Pvt. Ltd. Ranchi.
Ranchi, Date- 4/6/24
Subject: Regarding submitting clarification.
Context: Letter No. 727 of Executive Engineer, Drinking Water and
Sanitation Division, Jhumritilaiya, dated 01.06.2024.
Sir,
As per the directions, the department received information about
collapse of the under-construction water tower in Neemadhi village
Page 3 of 18
under Koderma-Demchonch Jaynagar Mega Rural Water Supply
Scheme through the relevant letter on the above subject.
The collapse of the under-construction water tower proves
that quality was not taken care of in the construction of the water
tower.
Due to your not doing quality work as per the agreement in
the construction of the water tower, the water tower collapsed due
to which the image of the department got tarnished.
Therefore, it is directed by attaching a copy of the letter
describing tire incident that why action should not be taken against
you as per rules for negligence shown by you and not doing quality
construction and, ensure to submit your explanation within 03
(three) days. In case of not receiving the explanation on time, it will
be considered that you have nothing to say regarding the allegation
and the department will be free to take unilateral action.
Translation- As Aforesaid
Yours sincerely,
Sd./-Illegible
04/06/2024
(Navneet Kumar)
Under Secretary to the Government.”
7. Following the show cause notice, multi-level enquiries were
conducted. Initially, a three-member committee gave its report on
06.06.2024. Thereafter, the Superintending Engineer also examined the
matter in detail. These enquiries drew inputs from Birsa Institute of
Technology, Sindri and also IITs of Delhi, Madras and Bombay. Upon
receiving concurrent reports indicating negligence on part of the appellant,
respondent no. 3, Chief Engineer, Drinking Water and Sanitation
Department, passed the termination cum blacklisting order dated
23.08.2024. The order containing the reasons for termination and
blacklisting is reproduced below for ready reference;
Page 4 of 18
“GOVERNMENT OF JHARKHAND
DRINKING WATER & SANITATION DEPARTMENT
Order No.-4/A.V.-01-102l/2024-20(CDO), Ranchi, Date-
23/08/2024
ORDER
It was informed by letter no. 727 dated 01.06.2024 of Executive
Engineer, Drinking Water and Sanitation Division, Jhumritilaiya that
the water tower under construction in Neemadhi village under the
work of Koderma-Domchonch Jaynagar Large Rural Water Supply
Scheme, which is allotteed to the contractor M/s A.K.G.
Construction & Developers Pvt. Ltd., Ranchi, collapsed on
01.06.2024.
In the light of the above, the contractor was asked for clarification
by departmental letter no. 1311 dated 04.06.2024, in the light of
which the contractor submitted clarification through letter no.
AKG/24-25/26 dated 06.06.2024 in which the contractor has
reported that no laxity has been shown in the construction of the
under-construction water tower and the under-construction water
tower fell due to natural disaster/cyclonic storm. In the light of the
above, by letter no. 663 (CDO) dated 21.06.2024 of this office, the
Superintending Engineer, Drinking Water and Sanitation Zone,
Hazaribagh was directed to review the clarification received from
the contractor point by point and provide a report with his clear
opinion. The opinion was provided by letter no. 545 dated
21.06.2024 of the Superintending Engineer, Drinking Water and
Sanitation Zone, Hazaribagh in which it is reported that the work
described has not been done as per the approved Design &
Drawing and the quality of the overall work has not been taken care
of.
In the matter described by the department, an inquiry was
conducted by a three-member inquiry committee. The inquiry
committee submitted the inquiry report through departmental G.S.P.
No.-283 dated 06.06.2024 in which it is reported that negligence
was shown in getting the construction work of the water tower
completed as per the approved Design & Drawing and quality was
not taken care of, due to which the incident of collapse/demolition
of the water tower occurred. Thus, the contractor is
responsible/guilty for negligence and negligence in getting the
quality work done.
The contractor informed the concerned Executive Engineer through
his letter-AKG/24-25/23 dated-01.06.2024 that he is ready to
construct ESR again at his own expense in place of the demolished
ESR under construction. It was never appropriate for him to
construct ESR again without departmental order. This act of his
reflects an attempt to hide his wrongdoings.
The department condemns this modus operandi of the contractor.
Page 5 of 18
It is clear from the above that the contractor got low quality
construction work done in the work of the scheme, which tarnished
the image of the department and created obstacles in achieving the
objectives of the department. This is a clear violation of rule number-
10.1.8 and 10.1.15 of the Contractor Registration Rules 2012.
Therefore, after review by the department, the explanation of the
contractor is rejected.
Therefore, after due consideration by the department in the light of
Rule No. 10.1.8 and 10.01.15 of Contractor Registration Rules
2012, the contractor M/s A.K.G. Construction & Developers Pvt.
Ltd., Panna Enclave, Flat No-202, Kadru, Ranchi-834002, e-mail:
ketan.kumar007@gmail.com is blacklisted for 5 (five) years with
immediate effect and in this context, the following order is given in
the light of Rule No. 10.3 and 10.4 of Contractor Registration Rules
2012:-
2. It is decided to stop all the works being done by the contractor
from the date of issuance of the order and to confiscate the security
deposit of all the works. Also, the concerned regional Chief
Engineer/Superintending Engineer/Executive Engineer will ensure
to take appropriate action as per the requirement to complete the
remaining work being done by the contractor.
3. The registration of the contractor in all categories in the
department is cancelled with immediate effect.
4. The proposal has received the approval of the Hon'ble
Departmental Minister.
(Prabhat Kumar Singh)
Chief Engineer, C.D.O
Date: 23/08/2024”
8. Aggrieved, the appellant filed an appeal, which came to be
dismissed vide order dated 05.12.2024 of the Appellate Authority cum
Principal Secretary, Drinking Water and Sanitation Department. The
appellant filed a writ petition challenging orders dated 23.08.2024 and
05.12.2024. By impugned judgement and order dated 07.02.2025, the
High Court dismissed the writ petition, while also imposing a cost of Rs. 2
lakhs on the appellant. It was held that that the corroborated findings of
the enquiries conducted, as also the appellant’s own admission in the form
Page 6 of 18
of offering to reconstruct the entire ESR at its own cost, leads to a logical
inference of negligence in carrying out the construction as per the
approved design and drawings. It was also held that the orders impugned
were neither illegal nor arbitrary as proper opportunity was given to the
appellant at every stage.
9. The appellant sought a review of the decision arrived by the High
Court on self-same grounds, which naturally came to be dismissed by the
High Court vide impugned order dated 04.08.2025. Thus, the present
appeals have been filed against the main judgement as well as the review
order.
Submissions
10. Mr. M.S. Ganesh, learned senior counsel appearing on behalf of the
appellant, would submit that the termination as well as the blacklisting are
illegal and arbitrary. He would submit that constitution of the three-
member committee, followed by its report and subsequent reports, were
without giving any opportunity to the appellant. He would also submit that
the arbitrariness is writ large as the decision to blacklist had the effect of
terminating all subsisting contracts.
11. Mr. Kumar Anurag Singh, learned counsel for the respondent
Department would submit that Clause 59 of the General Conditions of
Contract (GCC), dealing with termination of contract does not provide for
Page 7 of 18
a prior notice. He would also rely on Rule 10 of the Contractor Registration
Rules, 2012, dealing with blacklisting, which mandates issuance of a show
cause notice before blacklisting a contractor upon misconduct. He would
submit that the show cause notice 04.06.2024 was specifically for purpose
of blacklisting the appellant, which according to him, is further cemented
by express use of the phrase “ why action should not be taken against it
as per the rules”. In view of the concurrent operation of GCC and the 2012
Rules, he submits that the common order of termination cum blacklisting
is compliant of all conditions and therefore legal and valid.
Analysis
12. The controversy revolves around a true and correct interpretation of
Clause 59 of GCC, relating to termination, and Rule 10 of 2012 Rules,
relating to blacklisting. The Clause and the Rule is reproduced herein for
ready reference.
13. Clause 59 of GCC is as follows -
“59.Termination
59.1. The Employer or the Contractor may terminate the Contract if the other
party causes a fundamental breach of the Contract.
59.2. Fundamental breaches of Contract include, but shall not be limited to
the following:
(a) The Contractor stops work for 28 days when no stoppage of work is
shown on the current Programme and the stoppage has not been
authorized by the Engineer;
(b) The Engineer instructs the Contractor to delay the progress of the Works
and the instruction is not withdrawn within 28 days;
Page 8 of 18
(c) The Employer or the Contractor is made bankrupt or goes into liquidation
other than for a reconstruction or amalgamation.
(d) The Engineer gives Notice that failure to correct a particular Defect is a
fundamental breach of Contract and the Contractor fails to correct it within
a reasonable period of time determined by the Engineer.
(e) The Contractor does not maintain a security which is required;
(f) The Contractor has delayed the completion of works by the number of
days for which the maximum amount of liquidated damages can be paid as
defined in the Contract data; and
(g) If the Contractor, in the judgment of the Employer has engaged in corrupt
or fraudulent practices in competing for or in executing the Contract.
For the purpose of this paragraph: "corrupt practice" means the offering,
giving, receiving or soliciting of anything of value to influence the action of a
public official in the procurement process or in contract execution.
"Fraudulent practice" means a misrepresentation of facts in order to
influence a procurement process or the execution of a contract to the
detriment of the Borrower, and includes collusive practice among Bidders
(prior to or after bid submission) designed to establish bid prices at artificial
non-competitive levels and to deprive the Borrower of the benefits of free
and open competition."
59.3. When either party to the Contract gives notice of a breach of contract
to the Engineer for a cause other than those listed under Sub Clause 59.2.
above, the Engineer shall decide whether the breach is fundamental or not.
59.4. Notwithstanding the above, the Employer may terminate the Contract
for convenience.
59.5. If the Contract is terminated the Contractor shall stop work
immediately, make the Site safe and secure and leave the Site as soon as
reasonably possible”
14. Rule 10 of Contractor Registration Rules, 2012 is as follows -
“10. BLACKLISTING
10.1 A contractor in person or any partner of a registered firm or any director
of a private public limited company or his technical staff or any of his
authorized representatives, registered in any of the above categories, may
be blacklisted for any of the following misconducts:
10.1.1 Creating law and order problem in Government office while receiving
tender documents, submitting tender documents or doing any work related
thereto.
10.1.2 Intimidating or assaulting concerned officer or employee.
10.1.3 If the contractor is found selling or misusing Government goods such
as cement, steel and pipes etc..
10.1.4 If convicted in any criminal activity.
Page 9 of 18
10.1.5 If wrong documents are submitted for registration under these rules.
10.1.6 In case of being banned or blacklisted by any
department/undertaking of the Government of India or any State
Government.
10.1.7 In case of violation of Rule 6.2 of these rules.
10.1.8 Failure to execute the work as per the agreement and prescribed
specifications.
10.1.9 In case of the contractor handing over his work to another
contractor or any person without departmental order (subletting).
10.1.10 No improvement is reflected in the conduct of the suspended
contractor.
10.1.11 Corrupting or attempting to corrupt the tender process.
10.1.12 indulging in malpractices likes bribery, corruption or fraud.
10.1.13 any such act which obstructs the achievement of the objectives of
the works department.
10.1.14 applying political pressure directly or indirectly.
10.1.15 doing work of poor quality.
10.1.16 directly or indirectly threatening or intimidating departmental
officers/employees.
10.1.17 not achieving physical targets in proportion to the time elapsed.
10.2 The blacklisted contractor will be debarred from working in any
Government Department / Undertaking in future and his registration will be
cancelled with immediate effect.
10.3 If a registered contractor is blacklisted in any one category in the light
of Rule 10.1, then the registration of the said contractor in all other
categories, if any, will also be deemed to be cancelled with immediate effect.
10.4 All the works being carried out by the blacklisted contractor in the
Department of Drinking Water and Sanitation, Jharkhand will be stopped
from the date of the order issued in the light of Rule 10.1, and the security
deposit of all the works will be forfeited and appropriate action will be taken
as per requirement to complete the remaining works.
10.5. Before blacklisting a contractor of a particular category, it will be
necessary to issue a show cause notice.
10.6 The order of blacklisting can be passed by the registration officer of the
concerned category or the officer under who's supervision/under whose
supervision the registration officer is working.
10.7 Against the penalty imposed, the contractor may file an appeal before
the departmental secretary within thirty days.
10.8 After approval by the government, the blacklisting order will be
issued by the concerned registration officer.”
Page 10 of 18
15. Before we proceed to consider the Rules relating to blacklisting and
its adverse consequences, we may state that it was made clear to Mr.
M.S. Ganesh, learned senior counsel for the appellant, that in view of the
clear findings of negligence as articulated in the order of termination, we
will not interfere with the decision of termination. As regards the
submission of Mr. M.S. Ganesh that the appellant did not have sufficient
opportunity to defend himself, notwithstanding the submission of Mr.
Kumar Anurag Singh that termination does not require prior notice, we are
of the opinion that the appellant had sufficient opportunity at the common
hearing for termination and blacklisting. Further, the appellant argued the
entire case before the Appellate Authority. Appellant also raised and
contested the case on merits before the Division Bench. Having examined
the contest and its due consideration all through, we are of the opinion
that the decision as regards termination is unimpeachable, on merits as
well as on the grounds of due process.
16. In so far as the order relating to blacklisting is concerned, we are of
the opinion that this issue requires close scrutiny and that will be
undertaken by reference to Rule 10 of the 2012 Rules.
17. A cursory reading of Rule 10 makes it evident that an order of
blacklisting has serious consequences, effecting not only the existing
contracts but also bars future business transactions for some years.
Page 11 of 18
Under Rule 10.3, if a registered contractor is blacklisted for any one
category as per Rule 10.1, then the registration of the said contractor in
all other categories, if any, will be deemed to be cancelled with immediate
effect. Upon such cancellation, under Rule 10.4, all the works carried out
by the blacklisted contractor in the department will be stopped from the
date of issuance of order under Rule 10.1. It also provides that the security
deposit for all the works will be forfeited.
18. The contractual conditions governing termination on the one hand
and those that relate to blacklisting on the other are distinct and will be
exercised independently. A decision of blacklisting is not automatic and
certainly not a logical consequence of a decision of termination. Even after
the Department decides to terminate the contract, there is still a choice of
exercising the power of blacklisting. These decisions operate in two
dimensions - past and subsisting for termination and future for blacklisting.
In other words, an order of blacklisting transcends the existing contract
and debars the contractor from contracts that could probably be executed
in the next five years. In view of the serious consequences, it is necessary
for the Department to issue a specific notice proposing blacklisting of a
contractor and call for an explanation as to why an order of blacklisting
should not be passed. This is exactly the purpose and object behind Rule
10.5.
Page 12 of 18
19. The requirement under Clause 10.5 is a clear case of legislative (in
this case subordinate legislation) incorporation of principles of natural
justice. This Court has time and again emphasised the need to adhere to
principles of natural justice while passing blacklisting orders, given the
grave consequences that follow. In Erusian Equipment & Chemicals Ltd.
1
v. State of West Bengal , it was observed that –
The blacklisting order does not pertain to any particular contract. The
“15.
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 blacklists are “instruments of coercion”.
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
Fundamentals of fair play require that the person concerned
satisfaction.
should be given an opportunity to represent his case before he is put on the
blacklist.”
20. In order to emphasise the requirement of a show cause notice
preceding an order of blacklisting, this Court in UMC Technologies Pvt Ltd
2
v. Food Corporation of India held that –
At the outset, it must be noted that it is the first principle of civilised
“13.
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.
1
(1975) 1 SCC 70. The principle in Eurasian Equipment has been reiterated by this Court in many
subsequent judgements such as Raghunath Thakur v. State of Bihar (1989) 1 SCC 229 , Gorkha Security
Services v. Govt. (NCT of Delhi), (2014) 9 SCC 105, etc.
2
(2021) 2 SCC 551.
Page 13 of 18
3
This Court in Nasir Ahmad v. Custodian General, Evacuee Property 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.
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,
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 .
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
. This privilege arises because it is
entering into government contracts
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 take 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.
Thus, from the above discussion
21. , 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.”
21. The judgment in M/S Techno Prints v. Chhattisgarh Textbook
4
Corporation & Anr. underscored the need for a detailed consideration of
the consequences of blacklisting right at the outset, that is, from the stage
of issuing of show cause notice. The Court held as follows –
“29. However, what is important for us to say is that when there are
guiding principles explained by this Court as to when & in what
circumstances a blacklisting order can be passed then, in our opinion
such principles should also be borne in mind by the Authority at the
3
Nasir Ahmad v. Custodian General, Evacuee Property, (1980) 3 SCC 1.
4
2025 INSC 236.
Page 14 of 18
time of issuing a show cause notice. We say so because in the facts of
a given case like the one on hand, on the face of which it could be said that
there was no good reason for the Authority to issue a show cause notice
calling upon the contractor why he should not be blacklisted. Why ask the
contractor to face the proceedings when applying the aforesaid principles,
the issue of show cause notice would be an empty formality. We are saying
all this keeping in mind the peculiar facts of this case.
30. Therefore, the Authority is expected to be very careful before issuing a
show cause notice. It is expected to understand the facts well and try to
ascertain what sort of violation is said to have been committed by the
contractor. As noted above, there is always an inherent power in the
Authority to blacklist a contractor. But possessing such inherent power and
exercising such power are two different situations and connotations. There
may be a power but there should be reasonable ground to exercise such
power.
31. To put it by way of an illustration, the Police has the power to arrest but
it is not necessary that in all cases arrest must be effected. The Police
should know whether at all arrest is necessary.
32. We may put it in a slightly different way. Take for instance, the show
cause notice in the present case is the final order of blacklisting. The
final order in any case cannot travel beyond the show cause notice.
Therefore, we take the show cause notice as the final order. Whether
it makes out a case for blacklisting? This should be the test to
determine whether it is a genuine case to blacklist a contractor or visit
him with any other penalty like forfeiture of EMD, recovery of damages
etc. We say so because once an order of blacklisting is passed the
same would put an end to the business of the person concerned. It is
a drastic step. Once the final order blacklisting the Contractor is
passed then the Contractor is left with no other option but to go to the
High Court invoking writ jurisdiction under Article 226 of the
Constitution and challenge the same. If he succeeds before the Single
Judge then it is well and good otherwise he may have to prefer a writ
. This again would lead to unnecessary
appeal or LPA as the case may be
litigation in the High Courts. The endeavour should be to curtail the litigation
and not to overburden the High Courts with litigations of the present type
more particularly when the law by and large is very well settled and there is
no further scope of any debate.”
22. Returning to the facts of the present case, at the outset, it is
apparent that the show cause notice dated 04.06.2024 does not purport
to be a show cause notice for blacklisting at all. It perhaps expects the
contractor to assume that it is for termination as well as for blacklisting.
Page 15 of 18
Even if we accept the submissions of Mr. Kumar Anurag Singh that, as
there is no provision for prior notice before termination, this show cause
notice must be taken to be for blacklisting, we are of the opinion that it still
falls short of the requirement of a proper show cause notice for
blacklisting. This is for the reason that as the decision to blacklist is
independent of the decision to terminate, the Department must
demonstrate application of mind before it takes the next step of
blacklisting the contractor, over an order of termination. Upon taking such
a decision, it must also issue a show cause notice calling upon the
contractor to explain why a consequential order of blacklisting should also
not be passed. The letter must be indicative of the proposed decision to
blacklist and the requirement of the contractor to respond to it. The show
cause notice dated 04.06.2024 falls short of these requirements. Similarly,
the final order of blacklisting, dated 23.08.2024, also does not list the
reasons as to why an order of blacklisting has become necessary.
23. The contractual relationship between the parties is governed by two
legal regimes. While GCC governs termination, the 2012 Rules govern
blacklisting. Proceedings for termination should not be conflated with
proceedings for blacklisting. In the latter action, what is at stake is the
future of the contractor. A blacklisting order assumes that the contractor is
an incorrigible entity, at least for some time to come, in this case such an
Page 16 of 18
assumption was intended to operate for five years. For giving effect to
such a premise, there has to be sufficient evidence, clear application of
5
mind and stronger adherence to principles of natural justice . The
blacklisting order dated 23.08.2004 falls short of this requirement and is
liable to be set aside.
24. As a consequence of our decision to set aside the blacklisting order,
we would have required the Department to issue a fresh show cause
notice indicative of the reasons as to why a blacklisting order is felt
necessary and to thereby call upon the contractor to show cause.
However, in view of the fact that the order of termination cum blacklisting
was passed on 23.08.2024, and since then almost more than one and a
half year has already passed, without there being a stay of the said order
in the meantime, we are of the opinion that the relief to be granted can
suitably be moulded by directing that the order of blacklisting will cease to
operate with immediate effect. This order will benefit the appellant more
than the Department, because directing issuance of a fresh show cause
notice will only lead to further litigation.
25. Having considered the matter in detail and taking into account the
unimpeachable material about the negligence of the appellant leading to
5
Kulja Industries Ltd. v. Chief General Manager, Western Telecom Project BSNL, (2014) 14 SCC 731; The
Blue Dreamz Advertising Pvt Ltd. & Anr. v. Kolkata Municipal Corporation & Ors, 2024 INSC 589, M/s Techno
Prints (supra).
Page 17 of 18
collapse of the top dome of the ESR, we are of the opinion that the order
of termination of all contracts is legal and valid. Civil Appeals to this extent
are dismissed. However, the decision of blacklisting of the appellant is
illegal, arbitrary and unreasonable. The declaration of blacklisting is set
aside, and shall cease to operate with immediate effect.
………………………………....J.
[ ]
PAMIDIGHANTAM SRI NARASIMHA
………………………………....J.
[ ALOK ARADHE ]
NEW DELHI;
APRIL 02, 2026.
Page 18 of 18