Blacklisting Order Passed Without Specific Show Cause Notice Stating Proposed Penalty Is Violative of Natural Justice

The Petitioner, a sole proprietorship, was awarded a contract by the Chhattisgarh State Industrial Development Corporation (CSIDC) for the supply and installation of CCTV systems at various state warehouses

The work was reportedly completed within the 45-day deadline

Subsequently, the Respondent authorities issued several notices (dated May 2024 to January 2025) directing repairs and maintenance, which the Petitioner claims to have complied with promptly

On 26.11.2025, Respondent No. 1 issued an impugned order forfeiting the Petitioner’s security deposit and blacklisting the firm for five years

The Petitioner challenged this order via a writ petition, alleging that the action was taken without a specific show-cause notice proposing blacklisting or an opportunity for a hearing

1. Whether the impugned order blacklisting the Petitioner for five years was passed in violation of the principles of natural justice due to the absence of a specific show-cause notice

2. Whether the Petitioner is entitled to the release of the forfeited security deposit through writ jurisdiction despite the presence of an arbitration clause in the contract

The court primarily relied on the principles of natural justice and the doctrine of proportionality in administrative actions

Gorkha Security Services v. Govt. (NCT of Delhi) (2014) 9 SCC 105, which established that blacklisting is a "harsh" and "stigmatic" action requiring a specific show-cause notice that details the alleged breaches and explicitly states the proposed penalty so the party may rebut it

The court also respected the principle of alternative remedy, noting that financial disputes arising from contracts containing an arbitration clause should be resolved via that mechanism rather than Article 226

The Court observed that while the Respondents claimed deficiencies in performance, the Petitioner had placed on record evidence of timely compliance and remedial measures taken after receiving maintenance notices

Applying the Gorkha Security Services ratio, the Court found that the Respondents failed to issue a specific notice indicating the "intention to blacklist," which deprived the Petitioner of a meaningful opportunity to argue against such a severe "civil death"

The Court reasoned that since there was no evidence of mala fide intent or deliberate default, the blacklisting was disproportionate and arbitrary

Regarding the security deposit, the Court determined that because the dispute involved factual performance and financial claims under a contract, the existing arbitration clause (Clause 24) was the appropriate forum for adjudication

It quashed the impugned order dated 26.11.2025 specifically regarding the blacklisting of the Petitioner firm, effective immediately, on the grounds of violating natural justice

the Court declined to grant the refund of the security deposit directly, instead directing the Petitioner to pursue this claim through arbitration as provided under Clause 24 of the NIT

Parties were ordered to bear their own costs