Introduction
In M/S Techno Prints v. Chhattisgarh Textbook Corporation & Anr. (Civil Appeal of 2025, arising from SLP(C) No.10042/2023), the Supreme Court clarified the legal framework surrounding blacklisting by state instrumentalities in the context of public procurement and contractual disputes. The Court emphasized that blacklisting is a serious punitive measure which cannot be used routinely for breaches of contract, especially when the alleged default occurs under extraordinary circumstances such as the COVID-19 pandemic.
1. Factual Background and Procedural History
The appellant, M/S Techno Prints, a printing firm registered with the Chhattisgarh Textbook Corporation (CTC), was awarded a printing contract based on L-1 status under the 2020–21 textbook tender. Due to pandemic-related disruptions, the appellant failed to complete the allotted printing work within the stipulated time.
The respondent-Corporation issued a show cause notice on 14.12.2022, seeking to blacklist the appellant for three years and forfeit its EMD of ₹5 lakhs. This followed an earlier round of litigation where a prior blacklisting order dated 02.01.2021 had been quashed by the High Court in WPC No.1325/2021 on procedural grounds—specifically, for going beyond the scope of the corresponding show cause notice.
Challenging the fresh show cause notice, the appellant filed a writ petition, which was dismissed by a Single Judge. The Division Bench also upheld this order. The matter reached the Supreme Court by way of special leave.
2. Identification of Legal Issues
- Whether a writ petition under Article 226 is maintainable to challenge a mere show cause notice for blacklisting.
- Whether the respondent-Corporation was justified in issuing a fresh show cause notice after the earlier blacklisting order had been quashed.
- Whether breach of contract, caused due to uncontrollable circumstances like COVID-19, can justify initiation of blacklisting proceedings.
- What are the permissible grounds and guiding principles for invoking the drastic remedy of blacklisting?
- Whether the show cause notice was issued with a pre-determined mind, rendering it an empty formality.
3. Arguments of the Parties
Appellant – M/S Techno Prints:
- The delay in execution of the printing contract was due to the COVID-19 lockdown and supply chain disruptions, which were beyond its control.
- The earlier order of blacklisting had been set aside, and the fresh show cause notice attempts to revive the same action under a different guise.
- Issuance of the show cause notice, in the context of settled facts and lack of dishonest intent, amounted to an abuse of power.
- Cited Kulja Industries Ltd. v. BSNL and The Blue Dreamz Advertising v. KMC to argue that blacklisting requires egregious or dishonest conduct, which was absent in this case.
Respondent – Chhattisgarh Textbook Corporation:
- Asserted the contractual right to blacklist contractors for failure to meet deadlines under Clauses 16.1, 16.3, and 16.9 of the tender document.
- Argued that the appellant received significant paper stock but completed only a fraction of the assigned work.
- Denied any mala fides and emphasized that the show cause notice was issued in accordance with procedural norms, granting the appellant an opportunity to be heard.
4. Court’s Analysis and Reasoning
On Maintainability of Writ Against Show Cause Notice:
The Court reaffirmed that ordinarily, writ courts do not interfere with mere show cause notices unless the notice:
- Is without jurisdiction,
- Is issued with mala fide intent, or
- The outcome is pre-determined.
On the Nature of Breach and Role of COVID-19:
The Court acknowledged that the breach occurred during the peak of the pandemic, which materially impacted business operations. It noted that the delay did not stem from fraudulent conduct or intent to defraud but was rooted in circumstances beyond the appellant’s control.
On the Principles of Blacklisting:
The Court elaborated on the settled jurisprudence concerning blacklisting:
- Blacklisting is a drastic and stigmatic measure (ref: Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70).
- Must be reserved for cases of habitual default, fraud, or severe misconduct (Kulja Industries, AIR 2014 SC 9).
- Should not be used where a genuine dispute under a contract exists (Blue Dreamz Advertising, 2024 INSC 589).
On Show Cause as an Empty Formality:
Taking a pragmatic approach, the Court stated that in many cases, issuing a show cause notice is a formality when the authority has already made up its mind. It emphasized that where the eventual outcome is virtually foreclosed, continuing such proceedings burdens the contractor and leads to unnecessary litigation.
The Court applied a “substance-over-form” test by treating the show cause notice as if it were the final order. It held that, on its face, the notice did not establish a case that warranted blacklisting.
5. Final Conclusion and Holding
The Supreme Court quashed the portion of the show cause notice proposing blacklisting. However, it allowed the Corporation to proceed with forfeiture of the EMD amount of ₹5,00,000.
Key Holding:
“Blacklisting is a serious measure that should not be resorted to for every breach of contract, especially where such breach arises from extenuating circumstances and lacks any element of mala fide conduct.”
The judgment reinforces the constitutional requirement of fairness in administrative actions and limits on punitive action based on mere contractual infractions.
FAQs:
1. Can a government agency blacklist a contractor for delay due to COVID-19?
No, the Supreme Court held that blacklisting requires gross misconduct or fraudulent intent. Mere delays caused by force majeure events like COVID-19 cannot justify such a punitive measure.
2. What are valid grounds for blacklisting under Indian contract law?
Valid grounds include habitual failure to perform, supplying substandard goods, or fraudulent conduct. Breaches without mala fides typically do not justify blacklisting.
3. Is a writ petition maintainable against a show cause notice?
While courts ordinarily avoid interfering at the show cause stage, they may quash such notices if issued without jurisdiction, with mala fides, or if the outcome is predetermined.
4. Can government entities forfeit EMD without blacklisting?
Yes, forfeiture of Earnest Money Deposit (EMD) can be permitted under contractual clauses even if blacklisting is not justified, provided procedural fairness is followed.
5. What is the legal effect of blacklisting in India?
Blacklisting affects a contractor’s ability to bid in future tenders, creates reputational damage, and can disrupt business operations for years. Hence, it is treated as a severe administrative action.
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