The act of blacklisting is often exercised by the Government or public sector undertakings in India so as not to enter into a contractual relationship with contractors due to various reasons, some of them being a lapse in fulfilling a contract in the past, negligence, willful abandonment, etc. It is important to note that the right to blacklist is not derived from any statute, but is inherent in the party allotting the contract. Therefore, there are no statutory limitations on who can be blacklisted or why, and the Government or the Public Sector Undertakings are free to decide who to blacklist. However, Blacklisting has the effect of preventing a person from the privilege and advantage of entering into a lawful relationship with the Government for purposes of gain, thus, it should be exercised with great caution. Various judgements have been passed by several high courts and the Supreme Court of India to lay down basic tenets which need to be followed while blacklisting, and also to decide whether an act of blacklisting was lawful or not.


One of the earliest cases laying down the prerequisites to be followed by the Government before blacklisting a person/contractor is the decision of the Hon'ble Supreme Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. 1 , wherein the Hon'ble Supreme Court observed the following:

"12. ...Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality."

"20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. 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."

Therefore, Erusian Equipment2 lay down the requirement that the person who is being considered for blacklisting by the government has to be given an opportunity to represent and plead his case before he is blacklisted.

Another judgement given by the Hon'ble Supreme Court titled Patel Engineering Limited vs. Union of India (UOI) and Ors.3 after considering the judgement in Erusian Equipment, observed the following:

"15. It follows from the above judgment in Erusian Equipment case [(1975) 1 SCC 70] that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. 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—thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors."

Similarly, in Kulja Industries Limited vs. Chief Gen. Manager W.T. Proj. BSNL and Ors.4 the Hon'ble Supreme Court held that:

"17. That apart, the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because "blacklisting" simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential precondition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ court."

"25. Suffice it to say that "debarment" is recognised and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. What is notable is that the "debarment" is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor."

Therefore, Patel Engineering Ltd. and Kulja Industries have expanded upon the Erusian Equipment case by clarifying that a decision to blacklist by the government will have to follow the principles of natural justice as well as the doctrine of proportionality. Kulja Industries additionally also stated that debarment or blacklisting cannot be permanent.

Even in the latest judgment passed on this issue in the matter captioned as 'UMC Technologies Private Limited vs. Food Corporation of India and Ors. 5 the Hon'ble Supreme Court held the following:

"19. In light of the above decisions, it is clear that a prior show-cause notice granting a reasonable opportunity of being heard is an essential element of all administrative decision-making and particularly so in decisions pertaining to blacklisting which entail grave consequences for the entity being blacklisted. In these cases, furnishing of a valid show-cause notice is critical and a failure to do so would be fatal to any order of blacklisting pursuant thereto."

"21. Thus, from the above discussion, a clear legal position emerges that for a show-cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist the noticee. Such a clear notice is essential for ensuring that the person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting."


Therefore, analyzing the abovementioned landmark judgements, we are given to understand that the Government can blacklist entities as the right to do so is inherent in the party allotting the contract, however, the Government by virtue of its position is limited by certain tenets that it has to follow while blacklisting any entity. The position that emerges is as follows:

  1. The party being blacklisted has to be given the right to be heard and to plead its case before the Government can blacklist it (audi alteram partem).
  2. Any order to blacklist an entity has to be evaluated on a touchstone of the doctrine of proportionality.
  3. An entity cannot be permanently blacklisted.
  4. The Government has to issue a prior show-cause notice granting a reasonable opportunity of being heard, which clearly mentions or the contents clearly indicate that the entity failing to show cause, may be blacklisted.

Therefore, the Government or any Public Sector Unit, before blacklisting an entity, has to take the above points into consideration, and once the basic requirements are satisfied, can only issue an order of blacklisting then, otherwise the same would be subject to judicial review on the grounds as mentioned above.


1 (1975) 1 SCC 70

2 supra

3 (2012) 11 SCC 257

4 (2014) 14 SCC 731

5 (2021) 2 SCC 551

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.