Blacklisting Order Quashed for Violation of Natural Justice and Lack of Specific Prior Notice.

The Petitioner, a construction company, was declared the L-1 bidder for a road repair tender issued by Respondent No. 2 (Municipal Corporation Raipur).

Following the Letter of Acceptance, the Petitioner was directed to deposit an additional performance guarantee of ₹24,17,550/-.

The Petitioner requested that this amount be adjusted against its outstanding dues of ₹1,64,40,496.90/- from a separate prior agreement.

Without issuing a show-cause notice or granting a hearing, Respondent No. 2 issued an order dated 31.12.2025, which cancelled the tender, forfeited the Petitioner’s security deposit (FDR) of ₹1,50,000/-, and blacklisted/debarred the Petitioner for one year.

The Petitioner challenged this order under Article 226 of the Constitution.

1. Whether the order of blacklisting/debarment was legally sustainable in the absence of a prior show-cause notice and a hearing.

2. Whether the cancellation of the tender and forfeiture of the security deposit due to non-deposit of the performance guarantee was arbitrary or warrants judicial interference.

The Court applied the principles of natural justice, specifically audi alteram partem, as blacklisting entails grave civil and commercial consequences.

It relied on Gorkha Security Services v. Govt. of NCT of Delhi (2014), which mandates that a show-cause notice must clearly specify the proposed action of blacklisting.

UMC Technologies Pvt. Ltd. v. Food Corporation of India (2021), which establishes that blacklisting requires a meaningful opportunity of hearing.

Regarding commercial tenders, the Court relied on Jagdish Mandal v. State of Orissa (2007), holding that judicial review is restricted to cases of arbitrariness, mala fides, or favoritism, as the state must have "elbow room" in contractual matters.

The Court bifurcated the impugned order into two parts: the punitive action (blacklisting) and the contractual action (cancellation/forfeiture).

Regarding blacklisting, the Court found it to be legally fatal because Respondent No. 2 admitted that no specific show-cause notice proposing such a penalty was issued, nor was any hearing afforded, which violated the strict standards set in Gorkha Security Services.

Furthermore, the order was non-speaking and lacked independent reasoning.

Regarding the cancellation of the tender, the Court found the Petitioner had admittedly failed to comply with the mandatory condition of depositing the performance guarantee within the stipulated period.

The Petitioner’s request for adjustment of dues was unilateral and not accepted by the Authority; therefore, in the absence of evidence of mala fides or procedural arbitrariness in the decision-making process, the contractual cancellation was deemed a valid administrative exercise.

The Court declined to interfere with the cancellation of the tender and the forfeiture of the security deposit.

The Petitioner was granted liberty to pursue appropriate legal remedies, such as arbitration, for the remaining contractual grievances.