1. Introduction
1.1. Breach of contract or failure to perform a contract or abide by the terms of a contract can usually lead to termination of contract or a claim for specific performance or damages and compensation or payment of dues.
1.2. In a contract arising out of a tender, blacklisting of the contractor may also be available as a remedy for breach, if the tender terms provide for such.
1.3. In matters of tender, the parties are bound by the terms of the contract and by the provisions of the Indian Contract Act, 1872 alongwith the precedents on the issue.
1.4. Supreme Court and High Courts have provided that blacklisting, as a remedy for breach, cannot be applied arbitrarily.
2. Techno Prints vs. Chhattisgarh Textbook Corporation (2025 SCC OnLine SC 343)
2.1. In a tender where Techno Prints (appellant) was a successful bidder, Chhattisgarh Textbook Corporation (respondent) entered into a contract with the appellant.
2.2. One of the terms of the tender provided that in the event of non-fulfilment of the condition of completing the printing work by the contractor, the tenderer would have the right to put the contractor in Black List for 3 years and security deposit and EMD will be forfeited.
2.3. At a later stage, the respondent issued a show cause notice upon the appellant as to why it should not be blacklisted for breach of a contractual term.
2.4. The appellant accepted the non-fulfilment of contractual condition by reason of the covid-19 pandemic.
2.5. The show cause notice was challenged before the High Court of Chhattisgarh. The Single Bench dismissed the challenge on the ground that appellant had the right to reply to the show cause notice, thus, the dispute is pre-mature to be brought before a Court.
2.6. In the appeal against the said order, the Appellate Bench took a similar view which led to the filing of an appeal before the Supreme Court.
2.7. The Supreme Court considered two issues: (a) whether a challenge to a show cause notice can be entertained by a court or it is at a pre-mature stage and (b) whether nature of the breach justified the decision of calling upon the appellant to show cause as to why they should not be blacklisted.
2.8. In Kulja Industries Limited vs. Chief General Manager Western Tekecom Project, BSNL [(2014) 14 SCC 731]and The Blue Dreamz Advertising Pvt. Ltd. vs. Kolkata Municipal Corporation (2024 SCC OnLine SC 1896), the Supreme Court has laid down the guiding principles which operate as the circumstances in which a contractor can be blacklisted.
2.9. Irrespective of the contractual terms, the breach must have been without sufficient grounds and the measures of blacklisting must be reasonable.
2.10. The Supreme Court observed that although the present proceeding was filed at the stage of show cause notice and blacklisting order had not been passed yet but the guiding principles need to be borne in mind before a show cause notice is issued.
2.11. In the facts of the present case, the Court found that the respondent did not have any reason to issue a show cause notice calling upon the appellant to explain why it should not be blacklisted.
2.12. The fundamental finding is that a breach of such nature does not warrant blacklisting at all, thus the question of issuing a show cause notice which may lead to an order of blacklisting does not arise at all.
2.13. The Court also clarified that by virtue of the contractual terms, the Authority has inherent power to blacklist a contractor but there must be reasonable ground to exercise such power.
2.14. An order of blacklisting is a drastic step and the law on this issue is well settled. The show cause notice or the order of blacklisting must thus not proceed without ascertaining whether the nature of alleged breach makes out a case for blacklisting.
2.15. There have to be strong, independent and overwhelming materials to resort to this power given the stigmatic consequences that an order of blacklisting has on a contractor.
2.16. On the other hand, if the nature of the breach is so deviant or aberrant so as to warrant a punitive measure, the remedy of blacklisting may be considered and justified in such circumstances.
2.17. These principles primarily rest on the idea that an order of blacklisting may effectively last for a pre-determined period, however, it has long-term ill-effects on the business of a contractor.
2.18. The Court also held that issuance of a show cause notice in most cases is an empty formality and is issued with a predetermined mind. Higher probability is that it will lead to an order of blacklisting.
2.19. Since the Court found that blacklisting was not justified in this case, the show cause notice was quashed and set aside. The Court however clarified that it shall be open for the respondent to forfeit the EMD amount.
3. Judicial principles
3.1. In The Blue Dreamz Advertising Pvt. Ltd. vs. Kolkata Municipal Corporation (2024 SCC OnLine SC 1896) Supreme Court has held that when the conduct of the contractor is not so abhorrent then invocation of blacklisting is an unjustifiable drastic remedy and disproportionate penalty. Any decision to blacklist should be strictly within the parameters of law and has to comport with the principle of proportionality.
3.2. Blacklisting was considered to be a justified punishment in The State of Odisha vs. M/s Panda Infraproject Limited [(2022) 4 SCC 393] as in the incident of collapse of a ten meter concreteslab, serious lapse was found in the conduct of the contractor which had even led to deaths and injuries. In such case, the Court found debarment to be an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission. Further, the action of blacklisting was taken after following due procedure and after issuance of the show cause notice, thus, debarment cannot be said to be in violation of principles of natural justice.
3.3. In DSS ImagetechPvt. Ltd. vs. Indian Council of Medical Research, the Delhi High Court, relying on various other decisions held that blacklisting of a contractor has a more far-reaching effect and adverse consequence than a mere exercise of a contractual power to claim damages or terminate the contract. Its effect is all-pervasive and in fact amounts to "civil death" of the contractor as it affects the contractor's commercial dealings and businesses with other agencies as well. The conduct must be so reprehensible so as to invite a punitive measure and cannot be resorted to merely on account of bona fide controversies relating to contractual matters. It is a trite law that blacklisting of a contractor visits the Contractor with civil consequences in as much as it casts a slur, attaches a stigma and creates a barrier between the blacklisted person and the State entities in matters of commercial transactions.
4. Conclusion
4.1. Blacklisting is a grave punishment and it must only arise from an action equally grave. Blacklisting as a penalty for breach cannot be imposed in the absence of compelling circumstances that justify such action.
4.2. The courts have plainly stated that a mere allegation of contractual breach cannot, per se, lead to an order of blacklisting.
4.3. Thus, tender terms which provide for such action must be interpreted and applied cautiously.
A copy of the judgment is annexed hereto at page 3 to 16.
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