A Bench of Justices S Abdul Nazeer and BR Gavai of Supreme Court ruled that a vague show cause notice to blacklist an agency will be in violation of the principles of natural justice. It said that a show cause notice with the intention to blacklist the notice should spell out such intention in clear words so that a person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against such possible blacklisting.
The case is relating to blacklisting of a recruitment agency by Food Corporation of India (FCI) after certain question papers by the agency were found to have been leaked.
In November 2016, the FCI had issued a bid to appoint a recruitment agency to conduct the process of hiring watchmen for the corporation’s office.
The appellant agency had applied and was successful. Later, when the appellant agency conducted an exam to recruit watchmen, police officials arrested certain individuals including a member of the appellant company for leaking the question paper.
The FCI sent a show cause notice to the appellant and asked for an explanation. When the appellant sent a detailed reply, the FCI proceeded to ask for another final reply. The FCI then passed an order in January 2019 blacklisting the agency from undertaking FCI projects for the next five years. The security amount of the appellant with the FCI was also forfeited.
The Madhya Pradesh High Court, on February 13, 2019, dismissed the challenge to the FCI’s order which led to the appeal before the Supreme Court.
The appellant challenged only the blacklisting order before the Supreme Court and not the termination of contract.
Court’s Observations and Judgment
The top court held that for a show cause notice to constitute a valid basis for 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.”
In the present case, the court concluded that a plain reading of the notice made it clear that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the FCI in its show cause notice.
“After listing 12 clauses of the “Instruction to Bidders”, which were part of the Corporation’s Bid Document dated 25.11.2016, the notice merely contains a vague statement that in light of the alleged leakage of question papers by the appellant, an appropriate decision will be taken by the Corporation,”
The court also said that blacklisting order can cause civil death of a person as it results in an organization being blacklisted by other government companies too.
“This domino effect, which can effectively lead to the civil death of a person, shows that the consequences of blacklisting travel far beyond the dealings of the blacklisted person with one particular government corporation and in view thereof, this Court has consistently prescribed strict adherence to principles of natural justice whenever an entity is sought to be blacklisted,” the judgment stated.
Thus, it was held that 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.
The top court, therefore, set aside the orders passed by the High Court and FCI holding that the show cause notice issued by FCI was “contrary to the principles of natural justice.”