Blacklisting requires a specific show-cause notice and cannot be a mechanical consequence of contract termination.

The appellant, a registered contractor, was awarded a contract for the construction of an Elevated Service Reservoir (ESR) on March 6, 2023.

On June 1, 2024, the top dome of the reservoir collapsed.

The Department issued a show-cause notice on June 4, 2024, alleging negligence and poor quality of work, requiring an explanation within three days.

Following multi-level internal enquiries and technical inputs from institutions like BIT Sindri and various IITs, the Chief Engineer passed a composite order on August 23, 2024, terminating the contract and blacklisting the appellant for five years.

The appellant’s appeal to the Departmental Secretary and a subsequent writ petition and review before the High Court of Jharkhand were dismissed.

The appellant challenged both the termination and the blacklisting before the Supreme Court.

1. Whether the standards of judicial review for termination of a contract are distinct from those applicable to the blacklisting of a contractor.

2. Whether the termination of the contract was substantiated by findings of negligence and compliance with due process.

3. Whether the blacklisting order was legally sustainable in the absence of a specific show-cause notice proposing blacklisting and a lack of independent application of mind.

Clause 59 of the General Conditions of Contract (GCC) governing termination for fundamental breach.

Rule 10 of the Contractor Registration Rules, 2012, which mandates a prior show-cause notice before blacklisting.

The principle of audi alteram partem, emphasizing that blacklisting involves "civil consequences" and "casts a slur," necessitating a higher standard of natural justice as established in Erusian Equipment & Chemicals Ltd. v. State of West Bengal.

Doctrine from UMC Technologies Pvt Ltd v. Food Corporation of India, requiring a show-cause notice to "specifically and unambiguously" mention the proposed penalty of blacklisting to be valid.

The Court distinguished between termination and blacklisting, noting that while termination relates to past and subsisting contractual breaches, blacklisting is a "drastic step" that impacts future business prospects and carries a stigma.

Regarding termination, the Court found the order unimpeachable because findings of negligence were corroborated by multiple technical committees and the appellant had participated in hearings and appeals.

Regarding blacklisting, the Court found the show-cause notice dated June 4, 2024, patently infirm as it failed to explicitly notify the appellant that blacklisting was being contemplated, thereby violating Rule 10.5 of the 2012 Rules.

The Court observed that the Department failed to demonstrate an independent application of mind to show why blacklisting (a future-oriented penalty) was a necessary consequence beyond the immediate termination of the contract.

The Court set aside the blacklisting order, declaring it illegal and arbitrary for want of a specific show-cause notice and lack of application of mind.

Rather than remanding for a fresh notice, the Court "moulded the relief" due to the passage of time (1.5 years already served) and directed that the blacklisting shall cease to operate with immediate effect.

The appeals were partly allowed.