The Supreme Court emphasized that any decision to blacklist an individual or entity must strictly adhere to legal parameters and align with the principle of proportionality. The court underscored that such decisions should be fair and balanced, ensuring they are justified and not excessively punitive.
New Delhi: The Supreme Court emphasized that any decision to blacklist must adhere strictly to legal parameters and align with the principle of proportionality. This ruling came during a civil appeal by a company challenging the Calcutta High Court’s judgment.
The three-Judge Bench, including Justice B.R. Gavai, Sanjay Karol, and Justice K.V. Viswanathan, stated,
“The Division Bench has observed that blacklisting is 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. It also observed that between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The observations are too sweeping in their ambit and wholly overlook the fact that the respondent-Corporation is a statutory body vested with the duty to discharge public functions. It is not a private party. Any decision to blacklist should be strictly within the parameters of law and has to comport with the principle of proportionality.”
The Bench noted that invoking debarment too readily for ordinary cases of contract breaches where there is a bona fide dispute is not permissible. Senior Advocate P.S. Datta represented the appellants, while Advocate Sujoy Mondal represented the respondents.
In this case, The Blue Dreamz Advertising Pvt. Ltd., the appellant company, participated in a tender issued by the Kolkata Municipal Corporation (KMC) for the allocation of advertisement spaces on street hoardings, bus passenger shelters, and kiosks.
The company emerged as the highest bidder for several clusters, each quoted at Rs. 3,70,00,000/-. Following their confirmation of acceptance, issues arose regarding contract execution. The appellant reported not receiving a formal work order, the bank guarantee format, and faced difficulties due to mismatches in the unit code numbers and locations of the hoardings, among other issues. KMC demanded payment for June 2014, leading to further correspondence between the parties.
The appellant identified only 200 out of the 250 allotted hoardings and requested joint inspections to resolve discrepancies. Despite ongoing issues, KMC insisted on payments for the months from July to September 2014. By December 2014, KMC demanded over Rs. 8 crores, later increasing the demand to Rs. 10.28 crores. KMC eventually blacklisted the appellant in July 2015, which was later temporarily revoked.
Despite several show cause notices and the appellant’s invocation of the arbitration clause, KMC debarred the appellant for five years in March 2016 due to alleged non-payment and contract breaches. The appellant filed a writ petition against this decision before the High Court, which was carried in appeal by KMC and allowed by the Court. Aggrieved, the appellant approached the Supreme Court.
Given the facts and circumstances of the case, the Supreme Court clarified,
“Where the case is of an ordinary breach of contract and the explanation offered by the person concerned raises a bona fide dispute, blacklisting/debarment as a penalty ought not to be resorted to. Debarring a person, even for a certain number of years, amounts to civil death, as the individual is commercially ostracized, leading to severe consequences for them and their employees.”
The Court observed that the appellant faced a disproportionate penalty, noting that KMC used excessive measures for a minor issue.
The Court added.
“We are not concerned with the correctness of the award. What it does signify is that there was a bona fide contractual dispute between the parties, and we hold that the learned Single Judge was right in setting aside the order of debarment on the ground that there was a bona fide civil dispute between the parties,”
The Court further emphasized that simply stating that the blacklisting order included reasons is insufficient; the critical question is whether those reasons justify the blacklisting penalty and whether the penalty is proportionate.
It also noted,
“There has been no enquiry by the Division Bench as to whether the conduct of the appellant was part of the normal vicissitudes in business and commonplace hazards in commerce or whether the appellant had crossed the rubicon warranting a banishment order, albeit for a temporary period in larger public interest,”
Consequently, the Supreme Court allowed the appeal and overturned the blacklisting order.
The appellants represented by Senior Advocate P.S. Datta, AOR Anwesha Saha, and Advocate Salim Ansari.
The respondents represented by Advocate Sujoy Mondal, AOR L. C. Agrawala, and Advocate Pankaj Agarwal.
FOLLOW US ON YOUTUBE FOR MORE LEGAL UPDATES
