Blacklisting Beyond Show Cause Notice Violates Right To Carry On Business | Non-Observance Of Natural Justice Is Itself Prejudice: Rajasthan High Court
Sanchayita Lahkar
The High Court of Rajasthan Single Bench of Justice Anoop Kumar Dhand held that an order debarring a service provider from participating in tender processes for three years was unsustainable and set it aside. The Court directed that liberty would remain with the competent authority to initiate proceedings afresh by issuing a proper show cause notice that clearly specifies allegations, and thereafter to consider the reply and pass appropriate orders strictly in accordance with law after providing due opportunity of hearing. The operative direction concluded with the disposal of the writ petition alongside all pending applications.
The matter concerns the legality of a three-year debarment/blacklisting imposed by a governmental authority upon a Third Party Administrator engaged with a state health insurance scheme. According to the record, a show cause notice was issued on 20 May 2025 containing certain allegations. The recipient of the notice submitted a reply on 23 May 2025 requesting access to relevant records and the online portal to enable a comprehensive and detailed response.
The impugned order dated 12 June 2025 proceeded to blacklist the entity from participating in future tender processes for a period of three years. The writ petition sought quashing of the 12 June 2025 order, as well as incidental reliefs including directions for access to the portal and materials, and a direction to consider the representation after affording a reasonable opportunity of hearing.
The Court recorded the chronology as follows. The service provider had been appointed as a Third Party Administrator for the Rajasthan Government Health Scheme for two years pursuant to an agreement of 1 July 2022, following commencement on 21 June 2022. The contract tenure was extended on three occasions upon what was described as satisfactory performance/services, and the assigned work was completed until the contract ended on 4 February 2025. Subsequently, months after completion, the show cause notice dated 20 May 2025 was served, to which the reply dated 23 May 2025 was submitted seeking further particulars and access so as to furnish a comprehensive response.
The pleadings present the petitioner’s position that the notice lacked material particulars and that without the requested access to the portal and records, an effective reply could not be offered. It was asserted that the authority proceeded to pass the impugned order without considering the reply and without affording any opportunity of hearing, and that the impugned order contained grounds and reasons beyond the scope of the show cause notice. On this basis, it was submitted that the blacklisting order should be set aside for violating principles of natural justice and for travelling beyond the notice.
On behalf of the respondents, it was submitted that deficiencies were discovered upon audit and that the State had suffered a loss amounting to several crores of rupees. A show cause notice was issued and, rather than denying the allegations or furnishing a substantive reply, the noticee requested additional information. The respondents contended that sufficient materials were already available with the noticee and that the reply could have been provided without additional access. It was further stated that upon thorough examination by the competent authorities, additional deficiencies were discovered, and the impugned order was passed debarring for three years. The respondents also indicated that, in the event liberty was granted, they would consider a representation against the impugned order in accordance with law after affording an opportunity of hearing.
The record as narrated by the Court shows that the show cause notice was brief and that the reply of 23 May 2025 sought additional details and portal access. The authority, without addressing the request, passed the order dated 12 June 2025 imposing debarment/blacklisting for three years. The Court framed the central question for consideration as whether an order of debarring and blacklisting can travel beyond the scope of the show cause notice.
In evaluating this question, the Court examined the text of the show cause notice vis-à-vis the impugned order. The judgment records that the impugned order contained grounds that exceeded those stated in the show cause notice. The Court then considered precedents of the Supreme Court relevant to the scope of adjudication relative to the notice, and to the procedural requirements that constitute the essence of natural justice in administrative action. Among the cases referred to were the order in M/s Techno Prints v. Chhattisgarh Textbook Corporation & Anr., SLP(C) No. 10042/2023, decided on 12 February 2025, Commissioner of Central Excise v. Gas Authority of India Limited, (2007) 15 SCC 91, Olga Tellis & Ors. v. Bombay Municipal Corporation, (1985) 3 SCC 545, and Khem Chand v. Union of India, 1958 SCR 1080.
The petition also prayed for directions relating to access to the online portal of the scheme and to the findings of a quality check (QCPA), together with all other documents related to the petitioner. The reliefs sought included quashing of the impugned order, quashing of blacklisting/debarment and incidental proceedings arising therefrom, directions to decide the representation of 17 June 2025 after a reasonable opportunity of hearing, directions to grant access to the portal and to provide findings and documents, directions to restrain action pursuant to the impugned order, and any other orders deemed fit.
In response, the State asserted that significant deficiencies and losses had been identified upon audit, that further details requested were already within the knowledge and possession of the noticee, and that a thorough examination revealed additional deficiencies culminating in the impugned order. It was also indicated that if the petition was disposed with liberty, the representation would be considered in accordance with law after a hearing.
Against this backdrop, the Court’s discussion turned to two principal axes: whether the blacklisting order could lawfully contain grounds beyond those in the show cause notice; and whether the manner of passing the impugned order comported with the requirements of natural justice, including service of a notice with sufficient detail and the opportunity of a personal hearing before imposing a penalty with civil consequences, such as debarment from future tenders.
The judgment records the Court’s formulation of the central issue in the following terms: “Now, the question for consideration before this Court is whether the order of debarring and blacklisting the petitioner can travel beyond the scope of the show cause notice?”
Upon comparing the show cause notice dated 20 May 2025 and the impugned order dated 12 June 2025, the Court stated: “A perusal of the show cause notice dated 20.05.2025 indicates that certain allegations were levelled against the petitioner. However, a bare reading of the impugned order dated 12.06.2025 reveals that the impugned order has travelled beyond the allegations spell out in the show cause notice.”
The Court referred to the Supreme Court’s order in M/s Techno Prints v. Chhattisgarh Textbook Corporation & Anr., noting: “the black listing order cannot go beyond the scope of the show cause notice and if the blacklisting order has exceeded the grounds which are mentioned in the show cause notice, the same will not be tenable.” The judgment concludes on this head: “In the instant case also, the allegations levelled in the blacklisting order are exceeding the grounds for which the show cause notice was served upon the petitioner.”
The Court further recorded that the show cause notice lacked sufficient details justifying the penalty of blacklisting, while the impugned order exceeded the charges mentioned in the notice. The judgment states: “Show cause notice disclosing allegations, adverse material and proposed penalty is foremost fundamental requirement of principles of law. Penalty of blacklisting without detailed show cause notice is contrary to rule of law. Every action which is contrary to rule of law is arbitrary and violative of Article 14 of the Constitution of India.” It added that the settled principle of law is that an adjudicating authority cannot travel beyond the show cause notice, citing Commissioner of Central Excise Versus Gas Authority of India Limited reported in (2007) 15 SCC 91, in which “a two Judge Bench of Hon'ble Supreme Court has categorically held that Adjudicating Authority cannot travel beyond the show cause notice.”
On the requirement of opportunity of hearing, the Court recorded: “In the absence of proposal in the show cause notice, there was no question of making submissions on the part of petitioner. The Adjudicating Authority having travelled beyond the scope of the show cause notice, proceeded to pass the blacklisting order, thus, the order of blacklisting is not only contrary to the principles of natural justice but also exceeds the scope and ambit of show cause notice.”
The judgment noted the effect of such blacklisting on the right to business: “Such blacklisting amounts to denial of opportunity to the petitioner to participate in the future tender processes, which directly affects right of business of the petitioner. Thus, the impugned order not only entails civil consequences but also denies the petitioner's right to carry on its business.”
Addressing the specific facts, the Court recorded: “The instant case is a clear case of violation of the principles of natural justice wherein the petitioner received the show cause notice and duly submitted a reply on 23.05.2025, asking the respondents to provide certain documents and access to the portal. However, without paying any heed to the aforesaid reply and without providing the petitioner due opportunity of hearing, straightaway the order impugned has been passed by the respondents.”
On the broader contours of natural justice, the Court cited a Constitution Bench decision: “A five Judge Constitution Bench of the Hon'ble Supreme Court in Olga Tellis and Others Versus Bombay Municipal Corporation reported in (1985) 3 SCC 545 considered the question of opportunity of personal hearing and held that no order can be passed without granting an opportunity of personal hearing.” The judgment quoted passages from Olga Tellis stating that non-observance of natural justice is itself prejudice and that proof of prejudice independent of denial is unnecessary. The Court reproduced the observation: “In our view the principles of natural justice know of no exclusionary rule dependent on whether it would have made any difference if natural justice had been observed. The non-observance of natural justice is itself prejudice to any man and proof of prejudice independently of proof of denial of natural justice is unnecessary.”
The Court also discussed Khem Chand v. Union of India, stating that reasonable opportunity includes multiple facets. It quoted: “the reasonable opportunity envisaged by the provision under consideration includes-- (a) An opportunity to deny his guilt and establish his innocence… (b) An opportunity to defend himself by cross-examining the witnesses… and finally (c) An opportunity to make his representation as to why the proposed punishment should not be inflicted…” The Court recorded that such opportunity must be reasonable, which requires informing the person of the charge and the evidence, and allowing the opportunity to contest it, including by cross-examination and by presenting a defence.
The judgement stated: “The underlying principle of natural justice, evolved under common law, is designed to check and prevent arbitrary exercise of powers by the State or its functionaries. Therefore, these principles impose a duty to act fairly, ensuring fair play in administrative action. The fundamental maxim of natural justice i.e. audi alteram partem has several facets, two of them being (a) notice of the case to be issued and (b) opportunity to explain.” In this case, while a notice issued, the opportunity to explain was not granted before passing the impugned order of blacklisting.
The judgment states: “Hence, the order impugned amounts to a clear violation of the principles of natural justice, having been passed without affording the petitioner a due opportunity of hearing. Thus, on both counts, the order impugned dated 12.06.2025 is not sustainable in the eyes of law and is liable to be set-aside.” The Court further directed that “The respondents shall be at liberty to issue a fresh show cause notice clearly specifying the allegations levelled against the petitioner.”
The judgment continued with the procedural course to be followed in any fresh proceedings: “In the event, such a notice is issued by the respondents to the petitioner, it is expected from the respondents to consider the reply, so filed by the petitioner pursuant thereto and pass appropriate orders, strictly in accordance with law, after providing due opportunity of hearing to the petitioner.”
Finally, the disposition of the proceeding is recorded as: “With the aforesaid observations and directions, the present writ petition stands disposed of. Stay application and all pending application (s) if any, also stand disposed of.”
Advocates Representing the Parties
For the Petitioners: Mr. Abhishek Malhotra – Senior Advocate; assisted by Mr. Adhiraj Bhandari, Mr. Rohit Khalia, and Mr. Lokendra Singh
For the Respondents: Mr. Rajendra Prasad – Advocate General; assisted by Mr. Archit Bohra – AGC, Mr. Sheetanshu Sharma, Ms. Harshita Thakral, Ms. Dhriti Laddha, Mr. Tanay Goyal, and Mr. Prakhar Jain
Case Title: M/s Mdindia Health Insurance (TPA) Pvt. Ltd. v. State of Rajasthan & Ors.
Neutral Citation: 2025: RJ-JP:29312
Case Number: S.B. Civil Writ Petition No. 9690/2025; Order dated 31/07/2025
Bench: Justice Anoop Kumar Dhand
