Blacklisting without a specific show-cause notice proposing it violates natural justice.

The petitioners challenged the communication/order dated 17.06.2025 by which M/s Ziquitza Health Care Limited was blacklisted for two years from undertaking operations or works in the Department of Health, Medical Education & Family Welfare, Government of Jharkhand.

The State asserted that the petitioners had submitted a fake certificate to establish eligibility or experience for government contracts.

M/s Zen Plus Private Ltd. contended that the impugned order did not blacklist it and, in any event, that no show-cause notice had been issued to it before the proposed blacklisting.

M/s Ziquitza Health Care Limited contended that the preceding show-cause notice dated 26.09.2024 and communication dated 16.01.2025 did not expressly or impliedly indicate that blacklisting was proposed.

The State argued that M/s Ziquitza owned 100% of the shares of M/s Zen Plus after a demerger and that the corporate veil could be lifted.

The High Court heard both writ petitions together and issued Rule returnable forthwith.

1. Whether the order dated 17.06.2025 blacklisted M/s Zen Plus Private Ltd., despite expressly referring to M/s Ziquitza Health Care Limited after its demerger.

2. Whether blacklisting M/s Zen Plus Private Ltd. without issuing it a show-cause notice proposing blacklisting violated the principles of natural justice.

3. Whether M/s Ziquitza Health Care Limited could be blacklisted when the preceding show-cause notice and communication did not expressly or clearly imply that blacklisting was proposed.

4. Whether the alleged absence of prejudice or the “useless formality” theory could validate blacklisting without prior notice of the proposed penalty.

5. Whether the corporate relationship between M/s Ziquitza Health Care Limited and M/s Zen Plus Private Ltd. justified lifting the corporate veil and treating both entities as liable for blacklisting.

Blacklisting has serious civil consequences and must ordinarily be preceded by compliance with the principles of natural justice, including a specific and effective opportunity to show cause against the proposed blacklisting.

In Gorkha Security Services v. Government (NCT of Delhi), (2014) 9 SCC 105, the Supreme Court held that a show-cause notice must expressly or clearly indicate that blacklisting is proposed; a general reference to “action as deemed fit” or a contractual power to blacklist is insufficient.

UMC Technologies Pvt. Ltd. v. Food Corporation of India, (2021) 2 SCC 551, similarly requires clear notice of the proposed blacklisting because of its severe and stigmatic consequences.

The Court rejected reliance on the “useless formality” theory under S.L. Kapoor v. Jagmohan, (1980) 4 SCC 379, holding that the affected entity may seek leniency, rely on mitigating circumstances, or contest the duration and necessity of blacklisting even where the underlying factual allegations appear strong.

The Court further applied the principle of separate corporate personality: ownership of all shares in one company by another does not, by itself, justify disregarding their distinct legal identities or lifting the corporate veil.

The impugned order stated that “M/s Ziquitza Health Care Limited (as demerged resulting in the formation of M/s Zen Plus Private Limited)” was blacklisted; it did not state that M/s Zen Plus itself was blacklisted.

The Court held that M/s Ziquitza’s alleged 100% shareholding in M/s Zen Plus did not erase the latter’s separate corporate personality, particularly when no notice of proposed blacklisting had been issued to Zen Plus.

As regards M/s Ziquitza, the show-cause notice dated 26.09.2024 merely stated that action permissible under law might follow if the explanation was unsatisfactory, while the communication dated 16.01.2025 only sought information; neither expressly mentioned blacklisting nor contained circumstances from which such a proposal could clearly be inferred.

Applying Gorkha Security Services and UMC Technologies, the Court held that the omission was prejudicial because the petitioner could have addressed the proportionality of blacklisting, offered mitigating circumstances, or sought a lesser penalty.

The State could not avoid this requirement by asserting that the petitioners had no defence to the allegation of a fake certificate.

It held that the order did not, on its terms, blacklist M/s Zen Plus Private Ltd.; alternatively, if it were construed as doing so, it was invalid for want of prior notice and opportunity.

The blacklisting of M/s Ziquitza Health Care Limited was also set aside because the preceding communications did not specifically or clearly propose blacklisting.

The respondents were, however, permitted to issue fresh show-cause notices and proceed in accordance with law and on the merits.

The Rule was made absolute, with no order as to costs.