Supreme Court of India
GORKHA SECURITY SERVICESversusGOVT. OF NCT OF DELHI & ORS.
- Citation
- 2014 INSC 521
- Decided
- 4 August 2014
- Disposal
- Case Partly allowed
- Bench
- JASTI CHELAMESWAR
Holding
Blacklisting can be imposed only after a show‑cause notice that expressly informs the noticee of the proposed blacklisting, otherwise the action violates natural justice and must be set aside.
Summary
Gorkha Security Services, a contractor, was awarded a security services contract by the Delhi Government but allegedly failed to comply with statutory wage and benefit obligations. The Department issued a show‑cause notice on 6 February 2013 detailing various defaults but did not expressly state that blacklisting was a contemplated penalty. Subsequently, the Department blacklisted the firm for four years and imposed other monetary penalties. The firm challenged the blacklisting, arguing that the show‑cause notice failed to give it a specific opportunity to contest that particular sanction, violating natural justice. The Supreme Court held that a show‑cause notice must expressly disclose the intended penalty of blacklisting to satisfy the principles of natural justice; mere inference from the notice is insufficient. Consequently, the blacklisting order was set aside, though the respondents were free to re‑impose it after complying with the procedural requirement.
Issues considered
- Whether a show‑cause notice must specifically state the proposed action of blacklisting before such a penalty can be imposed.
- Whether the absence of an explicit mention of blacklisting in the notice violates the principles of natural justice.
- Whether the contractual clause authorising blacklisting permits its exercise without a specific notice of that penalty.
- Whether the appellant must demonstrate prejudice arising from the procedural lapse to invalidate the penalty.
Subjects
blacklistingshow cause noticenatural justiceadministrative lawpenaltycontract breachaudi alteram partemcivil deathgovernment procurement
Judgment
[2014] 13 S.C.R. 617
GORKHA SECURITY SERVICES A
V.
GOVT. OF NCT OF DELHI & ORS.
(Civil Appeal Nos. 7167-7168 of 2014)
B
AUGUST 04, 2014
[J. CHELAMESWAR AND A. K. SIKRI, JJ.]
Administrative Law - Imposition of penalty -
Blacklisting - Form and content of show cause notice C
required to be served, before deciding as to whether the
noticee is to be blacklisted or not - Held: It is incumbent to
state in the show cause notice that the competent authority
intends to impose a penalty of blacklisting, so as to provide
adequate and meaningful opportunity to the noticee to show 0
cause against the same - However, even if it is not mentioned
specifically but from the reading of the show cause notice, it
can be clearly inferred that such an action was proposed,
that would fulfill this requirement.
Administrative Law- Violation of contract- Imposition E
of penalty - Blacklisting of appellant-contractor - Validity-
Held: Blacklisting of appellant without giving it notice thereto,
was contrary to principles of natural justice as it was not
specifically proposed and, therefore, there was no s,how
cause notice given to this effect before taking action of F
blacklisting against the appellant - Impugned action of
blacklisting the appellant accordingly set aside.
Partly allowing the appeals, the Court
HELD:1. Blacklisting has to be preceded by a show G
cause notice. The necessity of compliance wUh the
principles of natural justice by giving the opportunity to
the person against whom action of blacklisting is sought
to be taken has a valid and solid rationale behind it.
H
617
618 SUPREME COURT REPORTS [2014] 13 S.C.R.
A Unless a statutory provision either specifically or by
necessary implication excludes the application of any
rules of natural justice, in exercise of power pre-judicially
affecting another must be in conformity with the rules of
natural justice. [Paras 17, 29][627-G-H; 637-A-B]
B
Patel Engineering Ltd. v. Union of India (2012) 11
SCC 257; Mis. Erusian Equipment & Chemicals
Ltd. v. State of West Bengal &Anr. (1975) 1 SCC
70: 1975 (2) SCR 674; Raghunath Thakurv. State
c of Bihar and Ors. (1989) 1 SCC 229 : 1988 (3)
Suppl. SCR 867 - relied on.
Chairman, Board of Mining Examination andAnr.
v. Ramjee 1977 (2) SCR904: 1977 (2) SCC 256
- referred to.
D
2. In the case at hand, it was incumbent on the part
of the Department to state in the show cause notice that
the competent authority intended to impose a penalty of
blacklisting, so as to provide adequate and meaningful
E opportunity to the appellant-contractor to show cause
against the same. However, even if it is not mentioned
specifically but from the reading of the show cause
notice, it can be clearly inferred that such an action was
proposed, that would fulfill this requirement. In the
F pres~nt case, however, reading of the show cause notice
does not suggest that noticee could find out that such
an action could also be taken. Insofar as penalty of black
listing and forfeiture of earnest money/ security deposit
is concerned it can be imposed only, "if so warranted".
G Therefore, without any specific stipulation in this behalf,
respondent could not have imposed the penalty of black
listing. [Paras 26, 28][635-G-H; 636-A-B, G]
3. It is not at all acceptable that non-mentioning of
H proposed blacklisting in the show cause notice has not
GORKHA SECURITY SERVICES v. GOVT. OF NCT OF 619
DELHI
caused any prejudice to the appellant. This apart, the A
extreme nature of such a harsh penalty like blacklisting
with severe consequences, would itself amount to
causing prejudice to the appellant. [Para 33][640-F-G]
Haryana Financial Corporation andAnr. v. Kai/ash
B
Chandra Ahuja 2008 (10) SCR 222 : (2008) 9
sec 31 - referred to.
4. The impugned order passed by the respondents
blacklisting the appellant without giving the appellant
notice thereto, is contrary to the principles of natural C
justice as it was not specifically proposed and, therefore,
there was no show cause notice given to this effect
before taking action of blacklisting against the appellant.
Therefore, the impugned action of blacklisting the
appellant is set aside. However, it would be open to the D
respondents to take any action in this behalf after
complying with the necessary procedural formalities.
[Para 34][640-H; 641 ·A-C]
Case Law Reference: E
(2012) 11 sec 257 relied on Paras 13, 17
1975 (2) SCR 674 relied on Para 17
1988 (3) Suppl. SCR 867 relied on Para 17
F
1977 (2) SCR 904 referred to Para 30
2008 (10) SCR 222 referred to Para 32
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
7167-7168 of 2014.
G
From the Judgment and Order dated 29.11.2013 of the
High Court of Delhi at New Delhi in LPA No. 860/2013 & CM
No.18089/2013.
H
620 SUPREME COURT REPORTS [2014] 13 S.C.R.
A S. B. Upadhyay, Sr. Adv., Tarkeshwar Nath, Saurabh
Kumar Tuteja, Rameshwar Prasad Goyal, Advs. for the
Appellant.
ManinderSingh,ASG, R. K. Rathore, Ms. Kiran Bhardwaj,
D. S. Mahra, Ad vs. for the Respondents.
8
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. Leave granted.
2. Present appeals raise an interesting question of law
c pertaining to the form and content of show cause notice, that
is required to be served, before deciding as to whether the
noticee is to be blacklisted or not. We may point out at the
outset that there is no quarrel between the parties on the
proposition that it is a mandatory requirement to give such a
D show cause notice before black listing. It is also undisputed
that in the present case the show cause notice which was given
for alleged failure on the part of the appellant herein to
commence/ execute the work that was awarded to the
appellant, did not specifically propose the action of blacklisting
E the appellant firm. The question is as to whether it is a
mandatory requirement that there has to be a stipulation
contained in the show cause notice that action of blacklisting
is proposed? If yes, is it permissible to discern it from the
reading of impugned show cause notice, even when not
F specifically mentioned, that the appellant understood that it was
about the proposed action of blacklisting that could be taken
against him?
3. The factu.al narration, leading to the impugned action
G viz. of blacklisting the appellant firm does not require much
elaboration. Stating the following events would serve the
purpose of addressing the issue at hand.
4. The appellant, which is a partnership firm, was
awarded the contract vide letter of award dated 1.9.2011 for
H
GORKHASECURITY SERVICES v. GOVT. OF NCT OF 621
DELHI [A. K. SIKRI, J.]
providing security services in Shri Dada Dev Matri Avum A
Shishu Chiktsalaya, Dabri, New Delhi (hereinafter referred to
as the 'hospital). This hospital is under the administration of
Respondent No. 1 viz. Government of NCT of Delhi. The
contract was for a period of 1 year i.e. from 2.9.2011 to
1.9.2012. The payment was.required to be made contractually B
to the appellant on monthly basis. Though the contract was
upto 1.9.2012, the appellant continued to provide services even
thereafter. The case of the appellant is that it has not been
given any payment after the expiry of the contract period though
itworkedtill31.7.2013. C
5. It appears that the respondents had issued a
communication dated 4.8.2012, in continuation of their earlier
letter dated 17 .10.2011, requiring the appellant to submit the
valid EPF/ ESIC certificate, list of persons deployed along with D
copies of their educational certificates, police verification
report, medical examination report etc. and to make the
payment of prescribed minimum wages to the workers through
ECS or by cheque and deposit the EPF/ESIC and service tax
etc. This communication further mentioned that inspite of the E
lapse of a long period the appellant had failed to submit the
requisite documents/ information and was not making full
payment of minimum prescribed wages to its workmen/
security guards nor was providing the statutory benefits like
EPF/ ESIC. Certain other deficiencies in the performance of F
the contract were also alleged therein. The appellant, in the
first instance, sent the letter dated 7.8.2012 in response to the
aforesaid notice, stating that it had obtained the EPF and ESIC
numbers in respect of deployed security personnel and
deposited their contributions towards EPF & ESIC with. the G
concerned authorities. Proof in support of this was also
furnished in the form of photocopies of consolidated challans
with the bills. The appellant specifically maintained that it had
made payment to the workers as per Minimum Wages Act.
H
622 SUPREME COURT REPORTS [2014] 13 S.C.R.
A 6. Detailed reply to the notice dated 4.8.2012 was given
by the appellant on 17.8.2012 wherein photocopies of bio-
data in respect of deployed 32 security personnel alongwith
police verification report as well as list of security personnel
along with their date of birth, educational qualifications,
B addresses and EPF & ESIC numbers were given. Other
issues mentioned in notice dated 4.8.2012 were also
addressed.
7. The respondent authorities, however, were not
c satisfied with the reply which resulted in serving of the show
cause notice dated 6.2.2013 upon the appellant detailing
various lapses, which the appellant had allegedly committed.
Since the entire dispute revolves around the nature of action
that was stipulated therein and was proposed to be taken, we
o would like to reproduce that part of the show cause notice in
verbatim:
"And whereas, by the above act and omissions, the firm
has not only failed to provide minimum wages and extend
the statutory benefits and abide by the labour laws, but
E also failed to provide satisfactory services and failed to
submit the required information/ document, as and when
called for and also being pre-requisite under the tender
terms and conditions, and have rendered this hospital at
the risk by deputing the less security personnels that too
F
without prior intimation of the credentials of the deployed
staff and police verification, as such liable to be levied
the cost accordingly.
Therefore, you are directed to show case
G within 7 days of the receipt of this notice, as to why the
action as mentioned above may not be taken against
the firm. beside other actions as deemed fit by the
competent authority. ·
(emphasis supplied)".
H
·•·.
GORKHASECURITY SERVICES v. GOVT. OF NCT OF 623
DELHI [A. K. SIKRI, J.]
8. The appellant furnished detailed reply dated 25.4.2013 A
to the aforesaid show cause notice taking the position that the
appellant firm had adhered to and complied with all the
obligations contained in the contract signed between the
parties and it was the respondent who had defaulted in making
the payment to the appellant inspite of various reminders B
issued. It was thus maintained that there was no violation of
the terms and conditions of the agreement on the part of the
appellant and the respondents were requested to withdraw
the show cause notice and make the payment due to the
appellant within 15 days with interest at the rate of 18% from C
the date it became payable.
9. On receipt of the aforesaid reply, respondents sent
another communication dated 30.5.2013 calling upon the
appellant to submit certain documents. This was adverted to D
by the appellant in the form of reply dated 8.6.2013 reiterating
the position taken earlier viz. the appellants were adhering to
all the statutory obligations and submitting documents with the
department. The appellant again insisted that respondents who
were not releasing the payment and instead threatening the E
appellant to terminate the contract. ·
10. First communication which was received, thereafter,
by the appellant was letter dated 30. 7.2013 informing the
appellant that the contract of the appellant would stand F
terminated from 31.8.2013 (A.N.) and the appellant was
directed to wind up its work and hand over the charge to the
in-charge outsourcing for further arrangements. The appellant
took exception to this move on the part of the respondent vide
its letter dated 31.7.2013 alleging thatthe contract was sought G
to be terminated without assigning any valid reasons which
was unjustified, that too when no payment was made for the
services rendered by the appellant. By another letter dated
14.8.2013, the appellant repeated its request for release of
payment. H
624 SUPREME COURT REPORTS [2014] 13 S.C.R.
A 11. At this juncture impugned order dated 11.9.2013 was
passed by the respondents wherein the respondents
maintained that the appellant had violated the terms and
conditions of the Contract Labour Laws and had also not
complied with certain other requirements stipulated in the
B agreement between the parties. In view thereof, vide this order,
various penalties were imposed upon the appellant in the
following form:-
(i)A penalty of Rs. 3000/- (Rupees Three Thousand only)
c under clause 27 (c) of the T&C, on account of public
complaints.
(ii) A penalty of Rs. 41,826/- (Rupees Forty One Thousand
Eight Hundred Twenty Six only) under Clause 27 (c)
(a) (i) on account of unsatisfactory performance and
D not abiding by the statutory requirements.
(iii) A penalty of forfeiture of performance guarantees
amounting to Rs. 3,70,000/- (Rupees Three Lac
Seventy Thousand only) submitted at the
E commencement of contract.
(iv) A penalty of bfacklistiAg the firm M/s Gorkha Security
for a period of 4 years from the date of this order, from
participating the tenders in any of the department of
Delhi Government/ Central Government/ Autonomous
F Body under the Government.
(v) Since, the firm has made the payment of wages@
Rs. 4,000/- per month per person which is less than
the prescribed rates of minimum wages, and
G submitted no proof of payment of wages, EPF and
ESI etc. in spite of opportunities given over the years,
hence, it is ordered to release the payment only @
Rs. 4,000/- per month per person plus applicable taxes
after deducting the penalty imposed at 1 & 2 above
H and withhold rest of the payment of bills to the extent
GORKHA SECURITY SERVICES v. GOVT. OF NCT OF 625
DELHI [A. K. SIKRI, J.]
of amount over and above Rs. 4,000/- per month per A
person, till the payment of full wages to the employees
and submissions of the proof of disbursing minimum
prescribed wages and depositing the EPF and ESI
contributions in respect of each deployed employees
who have actually deployed and worked in this hospital B
duly verified by the authorities concerned.
12. The appellant preferred an appeal dated 23.9.2013,
against the aforesaid order, to the Principal Secretary (H&FW).
However, it did not evoke any response from the Secretary c
and in these circumstances the appellant approached the High
Court of Delhi by filing the Writ Petition under Article 226 of
the Constitution of India, seeking quashing of the orders dated
11.9.2013. The said order was assailed by the appellant
primarily on the following grounds:- D
(i) The show-cause notice dated 6.2.2013 made no
reference to the proposed blacklisting of the appellant
and, therefore, the appellant had no opportunity to
make a representation in this regard;
E
(ii) No opportunity of personal hearing was given to the
appellant before passing the impugned order; and
(iii) There was no ground for blacklisting the appellant
since no term of the agreement was breached by it.
F
13. The learned Single Judge of the High Court did not
' find any merit in any of the aforesaid grounds and dismissed
the writ petition by reason of the judgment dated 25.10.2013.
It was held that the State had the power to blacklist a person,
which was a necessary concomitant to the executive power of G
the State to carry on the trade or the business and making of
contracts for any purpose, etc., as held in Patel Engineering
Ltd. v. Union of India; (2012) 11 SCC 257. In this judgment,
the Supreme Court had also taken the view that there is no
inviolable rule that a personal hearing has to be given to the H
626 SUPREME COURT REPORTS [2014] 13 S.C.R.
A affected party before taking a decision. Referring to the terms
and conditions of the contract, as contained in the NIT, which
form part of the agreement, and particularly Clause 27 (a) (ii),
the Court noticed that there was specific power reserved by
the respondent to black list the defaulting contractor for a period
B of 4 years. In view of that power it held that the appellant was
rightly blacklisted. In so far as argument of the appellant that
show cause notice did not specifically refer to the proposed
action of black listing, that plea was rejected in the following
terms:
c
"It would thus be seen that the contract between the
parties specifically empowered the respondents to
blacklist the appellant firm. Therefore, when the show
cause notice received by the appellant expressly
D mentioned of such action as may be deemed
appropriate by the Competent Authority, the appellant
could easily visualize that the action proposed by the
Competent Authority could include blacklisting of the
appellant-firm. Considering the express terms of the
E contract between the parties, it was not necessary for
the respondent to specifically refer to the proposed
blacklisting in the show cause notice issued to the
appellant. The purpose of show cause notice is primarily
to enable the noticee to meet the grounds on which an
F action is proposed against it and such grounds were fully
detailed in the show cause notice issued to the appellant.
In fact, even prior to issue of the show cause notice, the
appellant was aware of the issues between the parties
through the notice dated 4.8.2012. It would, therefore,
G be difficult to say that the appellant did not know what
case it had to meet while responding to the show-cause
notice. In any case, the appellant did respond to the show
cause notice without claiming the ambiguity in the said
notice and, therefore, it is not open to it to assail the
H
GORKHA SECURITY SERVICES v. GOVT. OF NCT OF 627
DELHI [A. K. SIKRI, J.]
impugned order on the ground that there was no specific A
reference to the proposed blacklisting of in the said
notice".
14. Not satisfied with the aforesaid outcome, the
appellant preferred Letters Patent Appeal before the Division B
Bench of the High Court. However, it has met the same fate in
as much as the High Court has dismissed the appeal vide
impugned judgment dated 29.11.2013 affirming the view taken
by the learned Single Judge.
15. It is in this backdrop, question which has arisen for C
our consideration in the present case is as to whether action
of blacklisting could be taken without specifically proposing/
contemplating such an action in the show cause notice? To
put it otherwise, whether the power of blacklisting contained in
Clause 27 of the NIT, was sufficient for the appellant to be on D
his guards, and to presume that such an action could be taken
even though not specifically spelled out in the show cause
notice?
16. We have heard the learned Counsel for the parties E
appearing on the either side on the aforesaid aspects, in detail.
Before we proceed to answer the question we may restate
and highlight the legal position about which there is neither
any dispute, nor can there be as there is no escape from the
below stated legal principle: F
Necessity of serving show cause notice as a
requisite of the Principles of Natural Justice:
17. It is a common case of the parties that the blacklisting
has to be preceded by a show cause notice. Law in this regard G
is firmly grounded and does not even demand much
amplification. The necessity of compliance with the principles
of natural justice by giving the opportunity to the person against
whom action of blacklisting is sought to be taken has a valid
and solid rationale behind it. With blacklisting many civil and/ H
628 SUPREME COURT REPORTS [2014] 13 S.C.R.
A or evil consequences follow. It is described as "civil death" of
a person who is foisted with the order of blacklisting. Such an
order is stigmatic in nature and debars such a person from
participating in Government Tenders which means precluding
him from the award of Government contracts. Way back in the
B year 1975, this court in the case of Mis. Erusian Equipment &
Chemicals Ltd.. v. State of West Bengal &Anr.; (1975) 1 SCC
70, highlighted the necessity of giving an opportunity to such a
person by serving a show cause notice thereby giving him
opportunity to meet the allegations which were in the mind of
C the authority contemplating blacklisting of such a person. This
is clear from the reading of Para Nos. 12 and 20 of the said
judgment. Necessitating this requirement, the court observed
thus:
D "12. Under Article 298 of the Constitution the executive
power of the Union and the State shall extend to the
carrying on of any trade and to the acquisition, holding
and disposal of property and the making of contracts for
ariy purpose. The State can carry on executive function
E by making a law or without making a law. The exercise
of such powers and functions in trade by the State is
subjectto Part Ill of the Constitution. Article 14 speaks of
equality before the law and equal protection of the laws.
Equality of opportunity should apply to matters of public
F contracts. The State has the right to trade. The State has
there the duty to observe equality. An ordinary individual
can choose not to deal with any person. The Government
cannot choose to exclude persons by discrimination. The
order of blacklisting has the effect of dipriving a person
G of equality of opportunity in the matter of public contract.
A person who is on the approved list is unable to enter
into advantageous relations with the Government
because of the order of blacklisting. A person who has
been dealing with the Government in the matter of sale
H
GORKHA SECURITY SERVICES ·v. GOVT. OF NCT OF 629
DELHI [A. K. SIKRI, J.]
and purchase of materials has a legitimate interest or A
expectation. When the State acts to the prejudice of a
person it has to be supported by legality.
20. Blacklisting has the effect of preventing a person from
the privilege and advantage of entering into lawful B
relationship with the Government for purposes of gains.
The fact that a disability is created by the order of
blacklisting indicates that the relevant authority is to have
an objective satisfaction. Fundamentals of fair play
require that the person concerned should be given an c
opportunity to represent his case before he is put on the
blacklist".
Again, in Raqhunath Thakur v. State of Bihar and
Ors.;(1989) 1 SCC 229 the aforesaid principle was reiterated .
in the following manner:- D
"4. Indisputably, no notice had been given to the appellant
of the proposal of blacklisting the appellant. It was
contended on behalf of the State Government that there
was no requirement in the rule of giving any prior notice E
before blacklisting any person. Insofar as the contention
that there is no requirement specifically of giving any
notice is concerned, the respondent is right. But it is an
implied principle of the rule of law that any order having
civil consequence should be passed only after following F
the principles of natural justice. It has to be realised that
blacklisting any person in respect of business ventures
has civil consequence·for the future business of the
person concerned in any event. Even if the rules do not
express so, it is an elementary principle of natural justice G
that parties affected by any order should have right of
being heard and making representations against the
order. In that view of the matter, the last portion of the
order insofar as it directs blacklisting of the appellant in
H
630 SUPREME COURT REPORTS [2014] 13 S.C.R.
A respect of future contracts, cannot be sustained in law. In
the premises, that portion of the order directing that the
appellant be placed in the blacklist in respect of future
contracts under the Collector is set aside. So far as the
cancellation of the bid of the appellant is concerned, that
B is not affected. This order will, however, not prevent the
State Government or the appropriate authorities from
taking any future steps for blacklisting the appellant if the
Government is so entitled to do in accordance with law
i.e. after giving the appellant due notice and an
c opportunity of making representation. After hearing the
appellant, the State Government will be at liberty to pass
any order in accordance with law indicating the reasons
therefor. We, however, make it quite clear that we are
not expressing any opinion on the correctness of
D otherwise of the allegations made against the appellant.
The appeal is thus disposed of."
Recently, in the case of Patel Engineering Ltd. v. Union
of India and Anr.; (2012) 11 SCC 257 speaking through one
E of us (Jasti Chelameswar, J.) this Court emphatically reiterated
the principle by explaining the same in the following manner:
"13. The concept of "blacklisting" is explained by this
Court in Erusian Equipment & Chemicals Ltd. v. State
ofWB. as under:
F
"20. Blacklisting has the effect of preventing a person
from the privilege and advantage of entering into lawful
relationship with the Government for purposes of
gains."
G 14. The nature of the authority of the State to blacklist the
persons was considered by this Court in the
above mentioned case.and took note of the constitutional
provision (Article 298), which authorises both the Union
H
GORKHASECURITYSERVICESv. GOVT. OF NCTOF 631
DELHI [A. K. SIKRI, J.]
of India and the States to make contracts for any purpose A
and to carry on any .trade or business. It also authorises
the acquisition, holding and disposal of property. This
Court also took note of the fact that the right to. make a
contract includes the right not to make a contract. By
definition, the said right is inherent in every person B
capable of entering into a contract. However, such a right
either to enter or not to enter into a contract with any
person is subject to a constitutional obligation to obey
the command of Article 14. Though nobody has any right
to compel the State to enter into a contract, everybody C
has a right to be treated equally when the State seeks to
establish ~ontractual relationships. The effect of
excluding a person from entering into a contractual
relationship with the State would be to deprive such
0
person to be treated equally with those, who are also
engaged in similar activity.
15. It follows from the above judgment in Erusian
Equipment case that the decision of the State or its
instrumentalities not to deal with certain persons or class E
of persons on account of the undesirability of entering
into the contractual relationship with such persons.is called
blacklisting. The State can decline to enter into a
contractual relationship with a person or a class of
persons for a legitimate purpose. The authority of the F
State to blacklist a person is a necessary concomitant
to the executive power of the State to carry on the trade
or the business and making of contracts for any purpose,
etc. There need not be any statutory grant of such power.
The only legal limitation upon the exercise of such an G
authority is that the State is to act fairly and rationally
without in any way being arbitrary-thereby such a
decision can be taken for some legitimate purpose. What
is the legitimate purpose that is sought to be achieved H
632 SUPREME COURT REPORTS [2014] 13 S.C.R.
A by the State in a given case can vary depending upon
various factors."
18. Thus, there is no dispute about the requirement of
serving show cause notice. We may also hasten to add that
B once the show cause notice is given and opportunity to reply
to the show cause notice is afforded, it is not even necessary
to give an oral hearing. The High Court has rightly.repudiated
the appellant's attempt in finding foul with the impugned order
on this ground. Such a contention was specifically repelled in
c Patel Engineering (supra). ·
Contents of Show Cause Notice
19. The Central issue, however, pertains to the
requirement of stating the action which is proposed to be taken.
The fundamental purpose behind the serving of Show Cause
0
Notice is to make the noticee understand the precise case
set up against him which he has to meet. This would require
the statement of imputations detailing out the alleged breaches
and defaults he has committed, so that he gets an opportunity
E to rebut the same. Another requirement, according to us, is
the nature of action which is proposed to be taken for such a
breach. That should also be stated so that the noticee is able
to point out that proposed action is not warranted in the given
case, ev1m if the defaults/ breaches.complained of are not
F satisfactorily ~xplained. When it comes to black listing, this
requirement becomes all the more imperative, haying regard
to the fact that it is harshest possible action.
20. The High Court has simply stated that the purpose of ·
show cause notice is primarily to enable the noticee to meet
G the grounds on which the action is proposed against him. No
doubt, thH High Court is justified to this extent. However, it is
equally important to mention as to what would be the
consequence if the noticee does not satisfactorily meet the
H grounds on which an action is proposed. To put it otherwise,
GORKHA SECURITY SERVICES v. GOVT. OF NCT OF 633
DELHI [A. K. SIKRI, J.]
we are of the opinion that in order to fulfil the requirements of A
principles of natural justice, a show cause notice should meet
the following two requirements viz:
i) The material/ grounds to be stated on which according
to the Department necessitates an action;
B
ii) Particular penalty/action which is proposed to be taken.
It is this second requirement which the High Court
has failed to omit.
we may hasten to add that even if it is not specifically
mentioned in the show cause notice but it can be clearly and
c
safely be discerned from the reading thereof, that would be
sufficient to meet this requirement.
Discussion with reference to the instant case:
21. With the aforesaid statement of law, now let us D
proceed with the present case scenario.
22. It would be necessary to take note of the relevant
portion of clause 27 of the NIT under which umbrage is taken
by the respondents to justify their action, and even appealed E
to the High Court. Clause 27 (a) (c) (a) reads as under:
"a .... (sic) In case the contractor fails to commence/
execute the work as sti1::1ulated in the agreement or
unsatisfacto!Y 1::1erformance or does not meet the statuto!Y
F
requirements of the contract, Department reserves the
right to impose the penalty as detailed below:-
(i) 20% of cost of order/ agreement per week, upto two
weeks' delays.
(ii) After two weeks delay Principal Employer reserves G
the right to cancel the contract and withhold .the
agreement and get this job carried out preferably from
.J. other contractor(s) registered with DGR and then from
open market or with other agencies if DGR registered
H
634 SUPREME COURT REPORTS [2014] 13 S.C.R.
A agencies are not in a position to provide such
Contractor(s). The difference if any will be recovered from
the defaulter contractor and also shall be blacklisted for
a period of 4 years from participating in such type of
tender and his earnest money/ security deposit may also
B be forfeited, if so warranted."
23. It is clear from the reading of the aforesaid clause
that when there is a failure on the part of the contractor to comply
with the express terms of the contract and/ or to commit breach
c of the said terms resulting into failure to commence/ execute
the work as stipulated in the agreement or giving the
performance that does not meet the statutory requirements of
the contract, the Department has a right to impose various
kinds of penalties as provided in the aforesaid clause. These
D penalties are of the following nature:-
(i) Penattv.. in the form of 20% of cost of orders/agreement
per week, upto delay of 2 weeks.
(ii) If the delay is beyond 2 weeks then:
E a) To cancel the contract and withhold the agreement.
In that event, Department has right to get the job
carried out from other contractor at the cost of the
defaulter contractor;
F b) To black list the defaulter contractor for a
period of 4 years;
c:) To forfeit his earnest money/ deposits, if so
warranted.
G 24. In the present case, it is obvious that action is taken
as provided in sub clause 2(ii). Under this clause, as is clear
from the reading thereof, the Department had a right to cancel
the contract and withhold the agreement. That has been done.
The Department has also a right to get the job which was to be.
H
GORKHASECURITY SERVICES v. GOVT. OF NCT OF 635
DELHI [A. K. SIKRI, J.]
carried out by the defaulting contractor, to be carried out from A
other contractor(s). In such an event, the Department also has
a right to recover the difference from the defaulting contractor.
This clause, no doubt, gives further right to the Department to
blacklist the contractor for a period of 4 years and also forfeit
his earnest money/ security deposit, if so required. B
25. It is thus apparent that this sub-clause provides for
various actions which can be taken and penalties which can
be imposed by the Department. In such a situation which action
the Department proposes to take, need to be specifically stated c
in the show cause notice. It becomes all the more important
when the q~tion of black listing and/ or forfeiture of earnest
money/ security deposit is to be taken, as the clause stipulates
that such an action can be taken, if so warranted. The words
"if so warranted", thus, assume great significance. It would show D
that it is not necessary for the Department to resort to penalty
of black listing or forfeiture of earnest money/ security deposit
in all cases, even if there is such a power. It is left to the
Department to inflict any such penalty or not depending upon
as to whether circumstances in a particular case warrant such E
a penalty. There has to be due application of mind by the
authority competent to impose the penalty, on these aspects.
Therefore, merely because of the reason that clause 27
empowers the Department to impose such a penalty, would
not mean that this specific penalty can be imposed, without F
putting the defaulting contractor to notice to this effect.
26. We are, therefore, of the opinion that it was incumbent
on the part of the Department to state in the show cause notice
that the competent authority intended to impose such a penalty G
of blacklisting, so as to provide adequate and meaningful
opportunity to the appellant to show cause against the same.
However, we may also add that even if it is not mentioned
specifically but from the reading of the show cause notice, it
H
636 SUPREME COURT REPORTS [2014] 13 S.C.R.
A can be clearly inferred that such an action was proposed, that
would fulfill this requirement. In the present case, however,
reading of the show cause notice does not suggest that noticee
could find out that such an action could also be taken. We say
so for the reasons that are recorded hereinafter.
B
27. In the instant case, no doubt show cause notice dated
6.2.2013 was served upon the appellant. Relevant portion
thereof has already been extracted above. This show cause
notice is conspicuously silent about the blacklisting action. On
c the contrary, after stating in detail the nature of alleged defaults
and breaches of the agreement committed by the appellant
the notice specifically mentions that because of the said
defaults the appellant was "as such liable to be levied the cost
accordingly''. It further says "why the action as mentioned above
o may not be taken against the firm, besides other action as
deemed fit by the competent authority". It follows from the above
that main action which the respondents wanted to take was to
levy the cost. No doubt, notice further mentions that competent
authority could take other actions as deemed fit. However, that
E may not fulfil the requirement of putting the defaulter to the notice
that action of blacklisting was also in the mind of the competent
authority. Mere existence of Clause 27 in the agreement
entered into between the parties, would not suffice the
aforesaid mandatory requirement by vaguely mentioning other
F "actions as deemed fit".
28. As already pointed out above in so far as penalty of
black listing and forfeiture of earnest money/ security deposit
is concerned it can be imposed only, "if so warranted".
G Therefore, without any specific stipulation in this behalf,
respondent could not have imposed the penalty of black listing.
29. No doubt, rules of natural justice are not embodied
rules nor can they be lifted to the position of fundamental rights.
However, their aim is to secure justice and to prevent
H
GORKHASECURITY SERVICES v. GOVT. OF NCT OF 637
DELHI [A. K. SIKRI, J.]
miscarriage of justice. It is now well established proposition of A
law that unless a statutory provision either specifically or by
necessary implication excludes the application of any rules of
natural justice, in exercise of power pre-judicially affecting
another must be in conformity with the rules of natural justice.
B
30. We are conscious of the following words of wisdom
expressed by this Court through the pen of Justice Krishna
Iyer in the case of Chairman, Board of Mining Examination
and Anr. v. Ramjee; 1977 (2) SCC 256:
"If the jurisprudence of remedies were understood and C
applied from the perspective of social efficaciousness,
the problem raised in this appeal would not have ended
the erroneous way it did in the High Court. Judges must
never forget that every law has a social purpose and
engineering process without appreciating which justice D
to the law cannot be done. Here, the socio-legal situation
we are faced with is a colliery, an explosive, an accident,
luckily not lethal, caused by violation of a regulation and
consequential cancellation of the certificate of the
delinquent shot-firer, eventually quashed by the High E
Court, for processual solecisms, by a writ of certiorari.
Natural justice is no unruly horse, no lurking land mine,
nor a judicial cure all. If fairness is shown by the decision
maker to the man proceeded against, the form, features F
and the fundamentals of such essential processual
propriety being conditioned' by the facts and
circumstances of each situation, no breach of natural
justice can be complained of. Unnatural expansion of
natural justice, without reference to the administrative G
realities and other factors of a given case, can be
exasperating. We can neither be finical nor fanatical but
should be flexible yet firm in this jurisdiction. No man shall
be hit below the belt - that is the conscience of the
H
638 SUPREME COURT REPORTS [2014] 13 S.C.R.
A matter.... We cannot look at law in the abstract or natural
justice as a mere artefact. Nor can we fit into a rigid
mould the concept of reasonable opportunity."
31. When it comes to the action of blacklisting which is
B termed as 'Civil Death' it would be difficult to accept the
. proposition that without even putting the noticee to such a
contemplated action and giving him a chance to show cause
as to why such an action be not taken, final order can be
passed blacklisting such a person only on the premise that
c this is one of the actions so stated in the provisions of NIT.
The "Prejudice" Argument
32. It was sought to be argued by Mr. Maninder Singh,
learned ASG appearing for the respondent, that even if it is
0 accepted that show cause notice should have contained the
proposed action of blacklisting, no prejudice was caused to
the appellant in as much as all nec.essary details mentioning
defaults/ prejudices committed by the appellant were given in
the show cause notice and the appellant had even given its
E reply thereto. According to him, even if the action of blacklisting
was not proposed in the show cause notice, reply of the
appellant would have remained the same. On this premise,
the learned ASG has argued that there is no prejudice caused
to the appellant by non mentioning of the proposed action of
F blacklisting. He argued that unless the appellant was able to
show that non mentioning of blacklisting as the proposed
penalty has caused·prejudice and has resulted in miscarriage
of justice, the impugned action cannot be nullified. For this
proposition he referred to the judgment of this Court in Haryana
G Financial Corporation and Anr. v. Kai/ash Chandra Ahuia:
(2oos) g sec 31.
"21. From the ratio laid down in 8. Karunakar1 it is
explicitly clear that the doctrine of natural justice requires
supply of a copy of the inquiry officer's report to the
H
GORKHASECURITY SERVICES v. GOVT. OF NCT OF 639
DELHI [A. K. SIKRI, J.]
delinquent if such inquiry officer is other than the A
disciplinary authority. It is also clear that non-supply of
report of the inquiry officer is in the breach of natural
justice. But it is equally clear that failure to supply a report
of the inquiry officer to the delinquent employee would
not ipso facto result in the proceedings being declared B
null and void and the order of punishment non est and
ineffective. It is for the delinquent employee to plead and
prove that non-supply of such report had caused
prejudice and resulted in miscarriage of justice. If he is
unable to satisfy the court on that point, the order of C
punishment cannot automatically be set aside.
31. At the same time, however, effect of violation of the
rule of audi alteram partem has to be considered. Even
if hearing is not afforded to the person who is sought to D
.
be affected or penalised, can it not be argued that "notice
would have served no purpose" or "hearing could not
have made difference" or "the person could not have
offered any defence whatsoever". In this connection, it is
interesting to note that under the English law, it was held E
few years before that non-compliance with principles of
natural justice would make the order null and void and no
further inquiry was necessary.
36. The recent trend, however, is of "prejudice". Even in F
those cases where procedural requirements have not
been complied with, the action has not been held ipso
facto illegal, unlawful or void unless it is shown that non-
observance had prejudicially affected the applicant.
44. From the aforesaid decisions, it is clear that though G
supply of report of the inquiry officer is part and parcel of
natural justice and must be furnished to the delinquent
employee, failure to do so would not automatically result
in quashing or setting aside of the order or the order being
H
640 SUPREME COURT REPORTS [2014] 13 S.C.R.
A declared null and void. Forth at, the delinquent employee
has to show "prejudice''. Unless he is able to show that
non-supply of report of the inquiry officer has resulted in
prejudice or miscarriage of justice, an order of
punishment cannot be held to be vitiated. And whether
B prejudice had been caused to the delinquent employee
depends upon the facts and circumstances of each case
and no rule of universal application can be laid down."
33. When we apply the ratio of the aforesaid judgment to
c the facts of the present case, it becomes difficult to accept the
argument of the learned ASG In the first instance, we may point
out that no such case was set up by the respondents that by
omitting to state the proposed action of blacklisting, the
appellant in the show cause notice has not caused any
D prejudice to the appellant. Moreover, had the action of black
listing being specifically proposed in the show cause notice,
the appellant could have mentioned as to why such extreme
penalty is not justified. It could have come out with extenuating
circumstances defending such an action even if the defaults
E were there and the Department was not satisfied with the
explanation qua the defaults. It could have even pleaded with
the Department not to blacklist the appellant or do it for a lesser
period in case the Department still wanted to black list the
appellant. Therefore, it is not at all acceptable that non
F IT!entioning of proposed blacklisting in the show cause notice
has not caused any prejudice to the appellant. This apart, the
extreme nature of such a harsh penalty like blacklisting with
severe consequences, would itself amount to causing prejudice
to the appellant.
G
34. For the aforesaid reasons, we are of the view that
the impugned judgment of the High Court does not decide the
issue in correct prospective. The impugned order dated
11.9.2013 passed by the respondents blacklisting the appellant
GORKHA SECURITY SERVICES v. GOVT. OF NCT OF 641
DELHI [A. K. SIKRi, J.]
without giving the appellant notice thereto, is contrary to the A
principles of natural justice as it was not specifically proposed
and, therefore,_there was no show cause notice given to this
effect before taking action of blacklisting against the appellant.
We, therefore, set aside and quash the impugned action of
blacklisting the appellant. The appeal is allowed to this extent. B
However, we make it clear that it would be open to the
respondents to take any action in this behalf after complying
with the necessary procedural formalities delineated above.
35. No costs. c
Bibhuti Bhushan Bose Appeals partly allowed.
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