BLACKLISTING OF CONTRACTORS

The decision to enter into a contractual relationship is inherent in every person capable of
entering into a contract. where a Blacklisting means deleting a persons has the right to make a
contract ,it also has a concomitant right not to make a contract. Blacklisting means deleting a
person from the name from the list and refusing to deal with him. It may also be
comprehended as delisting. Here person means both natural as well as artificial entities like
companies, firms etc.

The aim of blacklisting of contractor that the persons involved in government for offences or
violations committed during competitive bidding and contract implementation in accordance
with Government procurement Reform Act.

The Indian Governments right to contract flows from article 298 of the constitution. Hence
the analogous right not to contract also rests with the government which can choose either to
annul the contract or to adopt debarment or suspension as a tool for ensuring compliance of
erring contractors who fail to perform contractual actions for government.

However these decisions taken on behalf of the government have to be mandatorily balanced
with the wednesbury principle of reasonableness and natural justice.

Effects of blacklisting are quite considerable it prevents the person from the privilege and the
advantage of entering into lawful relationship with the government ,PSUs for purposes of
gains. Apart from reducing the persons prospects of making profits, it also leads to loss of
credibility and goodwill, and decline in business and clients and financial hardship. It acts as
a libel to the person. That’s why certain principles have been established by the courts of law
and rules have been framed by various state governments so that mere disobedience by
private contractors does not result in their blacklisting.

1. Principles of Natural justice and

2. Doctrine of proportionality

The principles of natural justice are contained in article 14 and 21 of the constitution. The
latin maxim ''audi alteram partem" which means no one should be condemned unheard, is
one of those principles.
The supreme court in the Erusian chemicals case laid down the law for notice to be given
before blacklisting. Since the order of blacklisting has serious civil consequence for the
affected company as such order affects the future prospects by the giving of the business by
depriving it the chance to do business with the government earning money and also it greatly
tarnishes the reputation of the company therefore the opportunity of being heard should be
given to the company before taking any such decisions.

Further if the rules on blacklisting or the contract does not mention any requirement for
hearing before blacklisting the party it can not be deducted that the principles of natural
justice should not be followed.

Raghunath Thakur vs state of Bihar

The state government had blacklisted the petitioner without giving any opportunity to be
heard, it was contended by the state that there was no specific requirement in any state that
there was no specific requirement in any rule that a notice had to be given to the petitioner
before a blacklisting order

The state government held that even if the rules do not specify so, it is an implied principle of
law that an order having civil consequence should be passed only after following the
principles of natural justice. Moreover, it is now a settled law that a decision making i.e the
administration is under a obligation to give reasons for its decisions so as to satisfy the
principle of natural justice.

Doctrine of Proportionality

Article 14 states that a states action can not be arbitrary, it must be proportional. In kulja
industries case the power to blacklist a contractor whether the contract be for supply of
material or for equipment or for the execution of any other work whatsoever is inherent in the
party allocating the contract, but where the party involved is state, any such decision is open
to scrutiny not only on the basis of principles of natural justice but also on the doctrine of
proportionality.

The supreme court in om kumar vs uoi has referred to the under this principle a proper
balance is maintained between the adverse effects which the administrative order may have
on the rights of persons keeping in mind the purpose which they were intended to serve.
Exclusion of a member of public from dealing with government restricts a persons right of
doing lawful trade which has been guaranteed by article 19 (1) (g).

Also article 21 protects reputation of a person or company. If the government wrongly

blacklists the company then its reputation is seriously tarnished. Reputation is a part of a
persons character and personality. Merely on the basis of irregularities in the performance of
contract, a person cannot be blacklisted as it has serious implications on the reputation of a
person.

RULES AND GUIDELINES ON BLACKLISTING

There are sufficient and strong reason to believe that the contractor or his employees has been
guilty of malpractices such as bribery corruption, fraud including substitution of or
interpretation in tenders, pilfering or unauthorized as or disposal of government materials
issued for specific worked.

The contractor continuously refuses to pay government dues without showing adequate
reasons and where the ordering authority is satisfied that no reasonable dispute attracting
reference to arbitration or court of law exists for the contractors or where a contractor or his
partner or his representation has been convicted by a court of law for offences involving
moral turpitude moral turpitude in relation to the business dealing or where security
consideration including suspected disloyalty to the state so warrant the blacklisting order.

v. punnen Thomas vs state of kerala

The petitioner claimed that the decision of deleting the name of the appellant from the list of
qualified contractors in effect, amounts to blacklisting which has serious civil consequences
and hence merits an opportunity of being heard.

Civil consequence does not imply merely consequences which the person concerned finds
unfavorable, but in fact means that there must be the possibility of an invasion of some civil
rights of the person.

It was further held that the principle of audi alteram partem could not be applied in such cases
as it could not be applied in such cases as it could read to hampering of the administration by
widening the scope for judicial interference.
Procedure for blaclisting

A show cause notice will be issued to the agency seeking his explanation for the lapses
committed by him. He has to provide an explanation will be expected within 15 days from
the issue of letter. In case his explanation is not found satisfactory to the company and
management decision of blacklisting agency will be allowed to complete all his ongoing
works, unless otherwise rescinded on the grounds of contract.

The name of partner and allied concerns of the blacklisted contractors shall also be
communicated to all concerned care shall be taken to see that the contractor blacklisted and
his partners do not transact any business with MSWE under a different name or title. Once
the blacklisting order is issue it shall not be revoked ordinarily unless. on review in later the
company and managing director is of the opinion that there is sufficient justification to
revoke the order of blacklisting.

SUBMITTED BY

Y.KEERTHI

19LLM06