Indefinite blacklisting without valid notice is illegal, Allahabad HC quashes debarment of wheat procurement society

The petitioner-society, a multi-state cooperative society registered under the Multi-State Cooperative Societies Act, 2002, held elections on 15 March 2019, following which petitioner no. 2, Ritu Meena, became its President and the newly elected Committee of Management was recognised by the Central Registrar.

Despite the change in management, the erstwhile President allegedly executed an agreement dated 2 April 2019 authorising respondent no. 9, who was neither a member nor office-bearer of the society, to procure wheat on its behalf. On that basis, the State authorities allotted eleven wheat-purchase centres in District Rampur to the petitioner-society.

A show-cause notice dated 26 August 2019 was issued to respondent no. 9 as “Sachiv/Adhyaksh”, rather than to the society or its recognised President. Thereafter, the Regional Food Controller passed an order dated 5 October 2019 blacklisting/debarring the petitioner-society for an indefinite period.

Subsequently, the Mandi Samiti issued a demand notice dated 6 March 2021 claiming ₹4,08,191.60 towards mandi fee and development cess for wheat procured through the eleven centres.

1. Whether the petitioner-society could be blacklisted or debarred without being served a valid show-cause notice and without being afforded an effective opportunity of hearing?

2. Whether blacklisting or debarment could lawfully be imposed for an indefinite or perpetual period?

3. Whether the petitioner-society was liable to pay the mandi fee and development cess arising from wheat procurement allegedly undertaken by private respondents using the society’s name?

The Court applied the principles of audi alteram partem, Article 14 of the Constitution, and the requirement that State action affecting public contracts must be fair, reasonable, non-arbitrary and proportionate.

Under Erusian Equipment & Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70, blacklisting has serious civil consequences and cannot be ordered without an opportunity to represent one’s case.

Joseph Vilangandan v. Executive Engineer, (1978) 3 SCC 36, Raghunath Thakur v. State of Bihar, (1989) 1 SCC 229, Gorkha Security Services v. Government (NCT of Delhi), (2014) 9 SCC 105, and U.M.C. Technologies Pvt. Ltd. v. FCI, 2021 (2) SCC 551, establish that a show-cause notice must precede blacklisting and must clearly indicate that blacklisting is proposed.

Under Kulja Industries Ltd. v. Chief General Manager, BSNL, (2014) 14 SCC 731, debarment is disciplinary in nature but can never be permanent; its duration must correspond to the gravity of the misconduct.

Vetindia Pharmaceuticals Ltd. v. State of U.P., (2021) 1 SCC 804, further requires clarity, objectivity and proportionality in determining the period of debarment.

The Court found that the petitioner-society’s elections had taken place on 15 March 2019 and that petitioner no. 2 had thereafter been recognised as its President. Consequently, the erstwhile President lacked authority to execute the agreement dated 2 April 2019 authorising respondent no. 9 to procure wheat on behalf of the society.

The procurement activities were therefore prima facie attributable to the private respondents, who were not office-bearers or members of the society.

The notice preceding blacklisting was addressed only to respondent no. 9 in his alleged capacity as “Sachiv/Adhyaksh”. Since respondent no. 9 had no recognised authority to represent the society, that notice could not legally constitute notice to the petitioner-society.

The society was consequently denied a meaningful opportunity to answer the allegations, in violation of natural justice.

Independently, the blacklisting order failed to prescribe any duration and effectively imposed perpetual debarment. Applying Kulja Industries and Vetindia Pharmaceuticals, the Court held that indefinite blacklisting was legally impermissible and disproportionate.

As to the mandi dues, the Court held that the petitioner-society itself had not undertaken the procurement and that its name had allegedly been misused by the private respondents. It therefore could not be held liable for the mandi fee and development cess.

However, because the market area had in fact been used and the procurement proceeds were stated to be with the State authorities, the Mandi Samiti’s legitimate claim was not extinguished; it was directed to be liquidated by the competent Regional Food Controller.

The order dated 5 October 2019 blacklisting/debarring the petitioner-society for an indefinite period was quashed because the society was not served with a valid show-cause notice and perpetual debarment was impermissible in law.

The demand raised against the petitioner-society for mandi fee and development cess was also not enforceable against it, as the procurement was found to have been undertaken by private respondents using the society’s name.

Nevertheless, the Regional Food Controller was directed to liquidate the Mandi Samiti’s claim under the notice dated 6 March 2021 forthwith.

No order as to costs was made.