A Assessment Of The Legislation Relating To Blacklisting Of Contractors By The Authorities And Public Sector Undertakings – Trials & Appeals & Compensation – India

A Assessment Of The Legislation Relating To Blacklisting Of Contractors By The Authorities And Public Sector Undertakings – Trials & Appeals & Compensation – India


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The act of blacklisting is commonly exercised by the Authorities or
public sector undertakings in India in order to not enter right into a
contractual relationship with contractors resulting from numerous causes,
a few of them being a lapse in fulfilling a contract previously,
negligence, willful abandonment, and many others. It is very important observe that
the fitting to blacklist is just not derived from any statute, however is
inherent within the occasion allotting the contract. Due to this fact, there are
no statutory limitations on who could be blacklisted or why, and the
Authorities or the Public Sector Undertakings are free to resolve who
to blacklist. Nevertheless, Blacklisting has the impact of stopping a
particular person from the privilege and benefit of getting into right into a lawful
relationship with the Authorities for functions of acquire, thus, it
ought to be exercised with nice warning. Numerous judgements have
been handed by a number of excessive courts and the Supreme Courtroom of India
to put down primary tenets which have to be adopted whereas
blacklisting, and likewise to resolve whether or not an act of blacklisting was
lawful or not.


One of many earliest instances laying down the conditions to be
adopted by the Authorities earlier than blacklisting an individual/contractor
is the choice of the Hon’ble Supreme Courtroom in Erusian
Gear & Chemical substances Ltd. v. State of W.B.
1 ,
whereby the Hon’ble Supreme Courtroom noticed the next:

“12. …Equality of alternative ought to apply to issues
of public contracts. The State has the fitting to commerce. The State
has there the responsibility to look at equality. An strange particular person can
select to not cope with any particular person. The Authorities can not
select to exclude individuals by discrimination.
The order of
blacklisting has the impact of depriving an individual of equality of
alternative within the matter of public contract. An individual who’s on
the permitted record is unable to enter into advantageous relations
with the Authorities due to the order of blacklisting. An individual
who has been coping with the Authorities within the matter of sale and
buy of supplies has a reputable curiosity or expectation.
When the State acts to the unfairness of an individual it needs to be
supported by legality.”

“20. Blacklisting has the impact of stopping an individual
from the privilege and benefit of getting into into lawful
relationship with the Authorities for functions of positive factors. The very fact
{that a} incapacity is created by the order of blacklisting signifies
that the related authority is to have an goal satisfaction.
Fundamentals of truthful play require that the particular person involved
ought to be given a chance to signify his case earlier than he’s
placed on the blacklist.

Due to this fact, Erusian Gear2 lay down the
requirement that the one that is being thought-about for
blacklisting by the federal government needs to be given a chance to
signify and plead his case earlier than he’s blacklisted.

One other judgement given by the Hon’ble Supreme Courtroom titled
Patel Engineering Restricted vs. Union of India (UOI) and
3 after contemplating the judgement in
Erusian Gear, noticed the next:

“15. It follows from the above judgment in Erusian
Gear case [(1975) 1 SCC 70] that the choice of the State or
its instrumentalities to not cope with sure individuals or class of
individuals on account of the undesirability of getting into into the
contractual relationship with such individuals known as blacklisting.
The State can decline to enter right into a contractual relationship with
an individual or a category of individuals for a reputable function. The
authority of the State to blacklist an individual is a vital
concomitant to the manager energy of the State to hold on the
commerce or the enterprise and making of contracts for any function, and many others.
There needn’t be any statutory grant of such energy. The
solely authorized limitation upon the train of such an authority is
that the State is to behave pretty and rationally with out in any manner
being arbitrary—thereby such a choice could be taken for some
reputable function.
What’s the reputable function that’s
sought to be achieved by the State in a given case can differ
relying upon numerous components.”

Equally, in Kulja Industries Restricted vs. Chief Gen.
Supervisor W.T. Proj. BSNL and Ors
.4 the Hon’ble
Supreme Courtroom held that:

“17. That aside, the facility to blacklist a contractor
whether or not the contract be for provide of fabric or tools or for
the execution of another work in anyway is in our opinion
inherent within the occasion allotting the contract. There isn’t a want for
any such energy being particularly conferred by statute or reserved
by contractor. That’s as a result of “blacklisting” merely
signifies a enterprise determination by which the occasion affected by the
breach decides to not enter into any contractual relationship with
the occasion committing the breach. Between two personal events the
proper to take any such determination is absolute and untrammelled by any
constraints in anyway. The liberty to contract or to not contract
is unqualified within the case of personal events. However any such
determination is topic to judicial evaluation when the identical is taken by
the State or any of its instrumentalities. This means
that any such determination can be open to scrutiny not solely on the
touchstone of the ideas of pure justice but additionally on the
doctrine of proportionality. A good listening to to the occasion being
blacklisted thus turns into an important precondition for a correct
train of the facility and a legitimate order of blacklisting made
pursuant thereto. The order itself being affordable, truthful and
proportionate to the gravity of the offence is equally examinable
by a writ court docket.”

“25. Suffice it to say that “debarment” is
recognised and sometimes used as an efficient methodology for disciplining
deviant suppliers/contractors who might have dedicated acts of
omission and fee or frauds together with misrepresentations,
falsification of information and different breaches of the laws
below which such contracts had been allotted. What’s notable is that
the “debarment” isn’t everlasting and the interval of
debarment would invariably depend on the character of the offence
dedicated by the erring contractor.”

Due to this fact, Patel Engineering Ltd. and Kulja
have expanded upon the Erusian Gear
case by clarifying {that a} determination to blacklist by the federal government
must observe the ideas of pure justice in addition to
the doctrine of proportionality. Kulja Industries
moreover additionally acknowledged that debarment or blacklisting can’t be

Even within the newest judgment handed on this subject within the matter
captioned as ‘UMC Applied sciences Personal Restricted vs. Meals
Company of India and Ors
. 5 the Hon’ble
Supreme Courtroom held the next:

“19. In gentle of the above selections, it’s clear that
a previous show-cause discover granting an affordable alternative of
being heard is an important component of all administrative
decision-making and notably so in selections pertaining to
blacklisting which entail grave penalties for the entity being
blacklisted. In these instances, furnishing of a legitimate
show-cause discover is essential and a failure to take action can be deadly
to any order of blacklisting pursuant

“21. Thus, from the above dialogue, a transparent authorized
place emerges that for a show-cause discover to represent the
legitimate foundation of a blacklisting order, such discover should spell out
clearly, or its contents be such that it may be clearly inferred
therefrom, that there’s intention on the a part of the issuer of the
discover to blacklist the noticee. Such a transparent discover is important
for making certain that the particular person in opposition to whom the penalty of
blacklisting is meant to be imposed, has an ample, knowledgeable
and significant alternative to indicate trigger in opposition to his attainable


Due to this fact, analyzing the abovementioned landmark judgements, we
are given to grasp that the Authorities can blacklist entities
as the fitting to take action is inherent within the occasion allotting the
contract, nevertheless, the Authorities by advantage of its place is
restricted by sure tenets that it has to observe whereas blacklisting
any entity. The place that emerges is as follows:

  1. The occasion being blacklisted needs to be given the fitting to be
    heard and to plead its case earlier than the Authorities can blacklist it
    (audi alteram partem).
  2. Any order to blacklist an entity needs to be evaluated on a
    touchstone of the doctrine of proportionality.
  3. An entity can’t be completely blacklisted.
  4. The Authorities has to subject a previous show-cause discover granting
    an affordable alternative of being heard, which clearly mentions or
    the contents clearly point out that the entity failing to indicate
    trigger, could also be blacklisted.

Due to this fact, the Authorities or any Public Sector Unit, earlier than
blacklisting an entity, has to take the above factors into
consideration, and as soon as the essential necessities are glad, can
solely subject an order of blacklisting then, in any other case the identical would
be topic to judicial evaluation on the grounds as talked about


1 (1975) 1 SCC 70

2 supra

3 (2012) 11 SCC 257

4 (2014) 14 SCC 731

5 (2021) 2 SCC 551

The content material of this text is meant to offer a basic
information to the subject material. Specialist recommendation ought to be sought
about your particular circumstances.


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