India: Blacklisting Of Contractors By The Government And Public Sector Undertakings

A contractual relationship necessarily implies consensus of two minds, and a private citizen is free to contract, with any person of his choice. This right by definition is inherent in every person capable of entering into a contract and where a person has the right to make a contract, he also has a concomitant right not to make a contract. The right to refuse to contract does not vest with the Government, its instrumentalities, or Public Sector Undertakings in the same manner as it vests with a common Undertakings citizen. The Government's right to contract flows from Article 298 of the Constitution. Hence, the parallel right not to contract also rests with the Government who can choose to blacklist any particular person or member of the public. However, this decision has to be taken by the Government reasonably and in accordance with the principles of natural justice. The traditional view that the executive is not answerable in the matter of exercising of prerogative power has long been discarded.

The development of law on this issue began with the full bench decision in the case of V. Punnen Thomas vs State of Kerala . The Petitioner claimed that the decision of deleting the name of the appellant from the list of qualified contractors, in effect, amounts to blacklisting which has serious civil consequences and hence, merits an opportunity of being heard. The majority opinion of the Kerala High Court held that the term 'civil consequences' does not imply merely consequences which the person concerned finds unfavourable, but infact means that there must be the possibility of an invasion of some civil rights of that person. It was further held that the principle of audi alteram partem could not be applied in such cases as it could lead to hampering of the administration by widening the scope for judicial interference. However, Justice Mathew in the dissenting opinion held that an act of debarring a public entity or member, for a set number of years, without any notice or opportunity to be heard is against all notions of fairness in a democratic government and cannot be sustained. Interestingly, the dissenting view of Justice Mathew is now the law as the majority view stands overruled by the Supreme Court in the Eurasian case.

In the landmark judgment of Eurasian Equipment & Chemicals Ltd. vs State of West Bengal , the Supreme Court laid down the law for notice to be given before blacklisting. The Petitioner Company who was engaged in the purchase and export of Cinchona had alleged that their tenders were being rejected by the State Government, despite being the highest in most cases. It was contended that this act of the State Government was discriminatory and against the principles of fairness. The State Government submitted that due to charges of malpractice and misconduct, the State Government had resolved not to deal with the Petitioner-company till the charges were cleared. The State Government further submitted that the rights granted under Articles 14, 19 and 21 of the Constitution cannot be used to compel the Government to negotiate or enter into a contract and the Government was free to contract with companies in whom it had "trust for integrity". The Hon'ble Supreme Court held that the blacklisting order involves serious civil consequences, as in effect it casts a slur on the reputation of the Company. The Court held that the Government being a Government of laws and not of men is bound to act in conformity with the principles of natural justice when interacting with members of the public. An order of blacklisting creates a disability for the concerned person. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.

Again, in the case of Raghunath Thakur vs State of Bihar , where the State Government had blacklisted the Petitioner without any notice or an opportunity to be heard, it was contended by the State that there was no specific requirement in any rule that a notice had to be given to the Petitioner before a blacklisting order. The Supreme Court held that even if the rules do not specify so, it is an implied principle of law that an order having civil consequences should be passed only after following the principles of natural justice. The blacklisting order in respect of business ventures has serious implications upon the future business of the concerned person and merits an opportunity of being heard and making representations against the order.

The law stands settled that an order of blacklisting attracts the principle of audi alteram partem, but does this duty of the State include any other facet or aspect of the principles of natural justice. In Grosons Phamaceuticals (P) Ltd. vs the State of Uttar Pradesh, the company had been blacklisted by the State Government after issuing a show cause notice. The company submitted that the principles of natural justice require that the show cause notice ought to have been supplied with all materials which formed the basis for issuing show cause notice. The Supreme Court held that it is true that an order blacklisting an approved contractor results in civil consequences and in such a situation in the absence of statutory rules, the only requirement of law while passing such an order was to observe the principle of audi alteram partem which is one of the facets of the principles of natural justice. The contention that it was incumbent upon the respondent to have supplied the material on the basis of which the charges against the appellant were based, was not the requirement of the principle of audi alteram partem. There was sufficient requirement of law that an opportunity of 'show-cause' was given to the appellant before it was blacklisted.

In all the cases cited above, the decision to blacklist was taken due to charges of fraudulent or corrupt practices by the affected parties. However, recently the Supreme Court has ruled that an order of blacklisting is sustainable even if it is for dereliction of legal obligation by the concerned person or company. In the case of Patel Engineering Ltd. vs Union of India, the Petitioner-contractor was declared the highest bidder for a development development operation and maintenance project of National Highways Authority of India (NHAI). NHAI called upon the Petitioner to confirm its acceptance who declined stating its inability to confirm the acceptance as, on a subsequent look, the bid was found to be commercially unviable. NHAI sent a show cause notice and after receiving the reply from the Petitioner, blacklisted the company from participating and bidding for future projects for one year. The Supreme Court held that the absence of a contract provision providing for blacklisting is not determinative of NHAI's authority to blacklist a bidder. The power of NHAI to enter into a contract or not to enter into a contract flows from Section 3 of the National Highways Authority Act which is similar to Article 298 of the Constitution. NHAI being a statutory corporation is bound by the constitutional limitations which binds the State in dealing with members of the public. The Court held that the Petitioner had been given an opportunity of being heard by way of a show cause notice. There is no requirement for the State to give a personal or oral hearing before taking a decision of blacklisting and hence no violation of any principles of natural justice had occurred in the matter to warrant interference by the Court.

Recently, the Calcutta High Court has clarified on the validity of a show cause notice or blacklisting order in cases where an arbitration agreement exists between the parties. In the case of Haldia Bulk Terminal Private limited vs. Board of Trustees for the Port of Kolkata, the Petitioner challenged the show cause notice for blacklisting issued by the Respondent. The Petitioner's stand was that the show cause notice is covered by the arbitration agreement between them. It would be unfair for the Petitioner to be blacklisted before the arbitral reference is concluded. The Respondent contended that an order to blacklist the Petitioner will only affect the future contracts and is de hors the contract and the arbitration agreement. The High Court held that the mere existence of an arbitration agreement does not preclude the Petitioner from blacklisting the Respondent. The existence of recourse to arbitration or even recourse to civil action cannot prevent an employer from blacklisting the contractor on the basis of the employer's perception of the contractor's performance qua the contract. However, the show cause notice for blacklisting and subsequently blacklisting can be challenged on the grounds of arbitrariness and mala fides.

The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions