Prior Show-Cause Notice is a Mandatory Pre-condition for the Validity of a Blacklisting Order.

The petitioner, M/s Samarth Enterprises, filed a writ petition under Article 226/227 of the Constitution of India challenging two orders issued by respondent No. 2: an order dated February 24, 2016, demanding a deposit of Rs. 7,57,457/- due to a Lokayukt inquiry, and an order dated March 5, 2016, debarring/blacklisting the petitioner firm.

The petitioner also sought a refund of Rs. 22,84,920/-.

During the proceedings, the petitioner withdrew the challenge regarding the monetary recoveries and refunds, seeking liberty to approach an appropriate forum.

The court subsequently focused on the legality of the blacklisting order, which the petitioner alleged was passed without a show-cause notice or an opportunity for a hearing.

1. Whether the order of blacklisting/debarring dated March 5, 2016, is legally sustainable if passed without issuing a prior show-cause notice or providing an opportunity for a hearing to the petitioner.

The court primarily applied the principles of natural justice as interpreted by the Supreme Court of India in Gorkha Security Services v. Government of NCT of Delhi; (2014) 9 SCC 105.

This precedent establishes that blacklisting entails "civil death" as it precludes a person from participating in government tenders and contracts, thus requiring a mandatory prior show-cause notice.

The court further referenced Erusian Equipment & Chemicals Ltd. v. State of W.B. (1975) 1 SCC 70 and Patel Engg. Ltd. v. Union of India (2012) 11 SCC 257, which mandate that while the State has the power to blacklist, it must act fairly, rationally, and in compliance with Article 14 of the Constitution.

The court examined whether the respondents could demonstrate that the petitioner was afforded procedural due process before the debarment.

The petitioner raised a solitary contention regarding the lack of a show-cause notice.

The State argued that the order was based on the opinion of the Additional Advocate General and alleged serious irregularities in the supply of injections.

However, the court found that neither the State nor respondent No. 2 could produce evidence from the record or the return filed that any show-cause notice was issued or an opportunity of hearing was granted prior to the impugned order of March 5, 2016.

Applying the rule from Gorkha Security Services, the court reasoned that since blacklisting has stigmatic and civil consequences, the failure to serve a show-cause notice constitutes a fatal violation of the principles of natural justice.

The writ petition was allowed in part, and the impugned order of debarment was quashed.

The court reserved liberty for the respondents to take fresh action against the petitioner in accordance with the law.

The challenge regarding monetary recovery was dismissed as withdrawn with liberty to agitate the same before a relevant forum.

No order as to costs was made.