Court Mandates Conciliation and Compliance with Natural Justice Before Blacklisting and Contract Termination Coercion

The Petitioner, Cyfuture India Pvt. Ltd., entered into a contract with Respondent No. 1 (a body under the Ministry of Jal Shakti) on March 2, 2023.

On April 16, 2026, the Respondents terminated the contract, followed by the invocation of a Performance Bank Guarantee and the initiation of blacklisting proceedings on April 17, 2026.

The Petitioner alleged that the Respondents failed to follow contractual safeguards for termination and did not provide a meaningful opportunity to respond to the blacklisting notice, as the hearing was scheduled only three days after the notice despite a 15-day window to reply.

The Respondents contended that the Petitioner had blocked critical national data related to dams and flood control, necessitating the immediate restoration of services and technical handover of source codes.

1. Whether the Petitioner is entitled to urgent interim protection against termination, bank guarantee invocation, and blacklisting proceedings under Section 9 of the Arbitration Act.

2. Whether the dispute should be referred to a Dispute Resolution Committee (DRC) for conciliation as per the General Terms and Conditions of the contract.

Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the court to grant interim measures of protection during or before arbitral proceedings.

Contractual Dispute Resolution Clause (Clause 16) found in the General Terms and Conditions dated January 13, 2023, which mandates a tiered resolution process starting with a Dispute Resolution Committee (DRC) [Clause 16.1] followed by Arbitration [Clause 16.2].

Principles of Natural Justice regarding the requirement of a fair hearing and a speaking order in blacklisting cases, which are considered "civil death".

The court balanced the Petitioner’s right to procedural fairness against the Respondents' urgent need to maintain critical public infrastructure data.

Recognizing that blacklisting requires a reasonable opportunity to be heard, the court extended the Petitioner's reply period to two weeks.

The court noted the Petitioner's willingness to rectify service discrepancies if the termination was recalled and, to preserve the subject matter and ensure public safety, directed the Petitioner to immediately restore services and provide necessary passwords/data.

By invoking Clause 16.1, the court utilized the parties' agreed-upon conciliation mechanism (DRC) to address substantive disputes, including payments and contract restoration, before proceeding to arbitration.

The Respondents were directed to grant the Petitioner two weeks to reply to the blacklisting notice, conduct a fair hearing, and issue a speaking order, and further directed the parties to initiate the DRC process under Clause 16.1 within one day.