Kiran Raj

The High Court of Judicature at Bombay has quashed the blacklisting of a contracting company by a public sector undertaking, stating that the decision was procedurally flawed. The Division Bench comprising Chief Justice Alok Aradhe and Justice Bharati Dangre found that the blacklisting order was issued without following the procedural safeguards laid down in the governing policy.

The petitioner, Harsha Infra Power Pvt. Ltd., a company engaged in the laying and maintenance of water pipelines, challenged the validity of Clause 4.1.1 (g)-(h) of the Policy for Holiday Listing of Bharat Petroleum Corporation Ltd. (BPCL) and sought the quashing of the blacklisting orders dated December 29, 2023, and March 29, 2024.

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BPCL had issued a Notice Inviting Bid for a pipeline project in Ahmednagar and Aurangabad, Maharashtra. Harsha Infra Power Pvt. Ltd. emerged as the successful bidder and was awarded the contract through a Letter of Acceptance (LoA) on March 13, 2023. As per the terms of the contract, the petitioner was required to commence work promptly and mobilize resources, including labour and materials, to complete the project within the agreed timeline.

However, within six weeks of the issuance of the LoA, BPCL’s Project Management Consultant (PMC) issued a show cause notice to the petitioner on April 24, 2023. The notice cited non-mobilization of labour and warned that failure to take corrective measures within 45 days would lead to blacklisting. The petitioner responded on April 27, 2023, explaining that certain pre-requisite conditions, such as land acquisition, were still pending and sought an extension.

On May 30, 2023, BPCL issued a communication reiterating the possibility of invoking the holiday listing clause due to the petitioner’s failure to comply. This was followed by a meeting between the parties on June 17, 2023, where BPCL agreed to extend the contract completion deadline to October 31, 2023, granting additional time for mobilization.

Despite this extension, BPCL issued another notice on July 10, 2023, indicating that the contract would not be extended further and would be terminated on July 12, 2023. The petitioner submitted a response on July 14, 2023, affirming that work would commence after completion of the land acquisition process. However, on July 24, 2023, BPCL terminated the contract, citing continued non-performance, despite the previously granted extension.

On September 11, 2023, BPCL issued a fresh notice terminating the contract and initiating blacklisting proceedings under Clause 10(b) of the General Conditions of Contract. The petitioner submitted a response on September 18, 2023, contesting the allegations. Nevertheless, BPCL issued the final order on December 29, 2023, blacklisting the petitioner for three years, the maximum period prescribed under Clause 4.2.12 of the policy. The petitioner filed an appeal on January 14, 2024, but the appellate authority dismissed it on March 29, 2024, leading to the present writ petition.

The petitioner contended that BPCL failed to follow the procedural safeguards enshrined in Clauses 4.2.1 and 4.2.5 of the Holiday Listing Policy. These clauses mandate the issuance of a show cause notice explicitly stating the charges, along with an opportunity to respond. The petitioner relied on multiple Supreme Court precedents, including Gorkha Security Services v. Government (NCT of Delhi) and Techno Prints v. Chhattisgarh Textbook Corporation, to argue that blacklisting decisions must adhere to principles of natural justice.

The petitioner further contended that blacklisting based on mere contractual disputes is impermissible and that BPCL failed to justify the imposition of the maximum period of three years. It was also argued that BPCL’s decision-making process was arbitrary and lacked transparency.

BPCL defended its decision, asserting that multiple notices were issued to the petitioner, warning of possible repercussions due to continued delays. The corporation stated that the petitioner did not dispute the fact that work had not commenced and that BPCL had no option but to invoke the blacklisting clause. Furthermore, BPCL contended that even though the petitioner’s appeal was barred by limitation, it was still heard on merits before being dismissed.

The court examined the procedural aspects of the blacklisting decision and examined whether BPCL complied with the principles of fairness and due process. The court reiterated the settled position that blacklisting has severe consequences and requires strict adherence to procedural safeguards.

Citing Erusian Equipment & Chemicals Ltd. v. State of W.B., the court stated:

“An order of blacklisting, having the effect of preventing a person from engaging in contracts with the government, must be passed only after providing a fair opportunity to be heard.”

The court further referred to Blue Dreamz Advertising (P) Ltd. v. Kolkata Municipal Corporation, where the Supreme Court observed that blacklisting should not be imposed as a penalty for mere breaches of contract. Instead, there must be strong, independent, and overwhelming material to justify such a measure.

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Upon examining BPCL’s policy, the court found that the company had not followed the prescribed format of issuing a show cause notice before blacklisting the petitioner. The court observed:

“The impugned action of blacklisting the petitioner has been taken in flagrant violation of Clauses 4.2.1 and 4.2.5 of the policy.”

Additionally, the court noted that the blacklisting order lacked proportionality, as BPCL had imposed the maximum penalty without providing any reasoning. The judgment further recorded:

“In the absence of reasons justifying the imposition of the maximum period of three years, the decision appears to be arbitrary and disproportionate.”

The High Court quashed the blacklisting orders dated December 29, 2023, and March 29, 2024. However, the court granted liberty to BPCL to initiate fresh proceedings against the petitioner, provided that the corporation strictly adheres to the procedural requirements set out in the policy. The court specifically directed:

“In case the Corporation decides to proceed against the petitioner, it shall bear in mind the law laid down by the Supreme Court in M/s. Techno Prints.”

Advocates Representing the Parties

For the Petitioner: Dr. Abhinav Chandrachud, with Mr. V. C. Shukla, Mr. Tarun Gulia, and Mr. Darshan Patankar, instructed by Mr. Tejas Mande

For the Respondent: Mr. Prasad S. Dani, Senior Advocate, instructed by S. R. Page

Case Title: Harsha Infra Power Pvt. Ltd. v. Bharat Petroleum Corporation Ltd. & Anr.

Neutral Citation: 2025: BHC-OS:3677-DB

Case Number: WP No. 3076 of 2024

Bench: Chief Justice Alok Aradhe and Justice Bharati Dangre

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