# A.K. Construction Company v. Union of India & Ors

- **Citation:** (2024) 7 ILRA 629
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-07-19
- **Bench:** Shekhar B. Saraf, Manjive Shukla
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/a-k-construction-company-v-union-of-india-ors-52265
- **Pages:** 15

## Headnote

Law
-
Blacklisting
-
Termination of Contract - Jurisdiction -
Maintainability - Show cause notice should
not be pre-meditative in nature and a writ
petition would be maintainable against
such a show cause notice. (Para 5, 9)

A show cause notice cannot be read
hypertechnically, and it is to be read
reasonably. And the person who is subject
to it must get the impression that he will
get an effective opportunity to rebut the
allegations contained in the show cause
notice and prove his innocence. (Para 11,
12)

A writ court refrains from interfering with such
notices unless they appear to be issued without
jurisdiction. However, there is an exception to
the general rule. When a show cause notice is
issued with clear pre-meditation, suggesting
that the authority has already made up its mind
regarding the outcome, a writ petition can be
justified. This is because a subsequent hearing
in such cases is unlikely to be impartial or
productive. Once a decision is effectively predetermined, further hearings do not serve their
intended purpose. This approach ensures that
the principles of natural justice and fair hearing
are upheld. (Para 10)

(1) It is a common principle of law that
unless an accusation is made in the show
cause notice, a finding with respect to the
same cannot be recorded on the same in
the final order. The principle behind the same
is that a person who is accused of a particular
act must be given a chance to defend himself
for the same. The authority cannot be allowed
to change the goal post while passing the order.
(Para 23)

There was a charge in the show cause notice
that the employee of the petitioner had taken
money, whereas the finding in the impugned
order is that an unauthorised person who was
not an employee of the petitioner had taken
money in the precinct of the fee plaza. The
offence that emerges from the impugned order
now is that the petitioner allowed unauthorised
people to be present in the precinct of the fee
plaza. There are similar findings w.r.t. other
allegations made in the show cause notice in the
impugned order. (Para 22, 24)

(2) The incidents mentioned did not take
place in the same month, and therefore,
the application of Clause 35(2) r/w Clause
20 of the terms and conditions appear to
be illegal as Clause 20 requires more than
three defaults in the same month. The
show cause notice, is pre-determined and the
impugned order travels beyond the scope of the
said show cause notice. (Para 25)
630 INDIAN LAW REPORTS ALLAHABAD SERIES
B. A quasi-judicial authority must record
reasons in support of its conclusions.
Insistence on reason is a requirement for
both
judicial
accountability
and
transparency. The ongoing judicial trend in all
countries committed to the rule of law and
constitutional governance is in favour of
reasoned decisions based on relevant facts.
Reasons in support of decisions must be cogent,
clear,
and
succinct.
Therefore,
for
the
developm

## Text

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7 All. A.K. Construction Company Vs. Union of India & Ors.
629
impugned orders cannot be sustained and
must be quashed.

30. In the result, both the writ petitions
succeed and are allowed. The impugned
orders dated 16.09.2014 passed by the
Prescribed Authority-Ceiling/ Additional
Collector (Finance and Revenue), Pilibhit
and the order dated 19.05.2022 passed by
the
Additional
Commissioner
(Administration),
Bareilly
Division,
Bareilly are hereby quashed.

31. Costs easy.
----------
(2024) 7 ILRA 629
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 19.07.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.
THE HON'BLE MANJIVE SHUKLA, J.

Writ C No. 20223 OF 2024

A.K. Construction Company ...Petitioner
Versus
Union of India & Ors. ...Respondents

Counsel for the Petitioner:
Sri Anoop Trivedi, Sr. Advocate, Sri
Devansh Mishra, Sri Vibhu Rai

Counsel for the Respondents:
Sri Mahendra Pratap

A.
Contract
Law
-
Blacklisting
-
Termination of Contract - Jurisdiction -
Maintainability - Show cause notice should
not be pre-meditative in nature and a writ
petition would be maintainable against
such a show cause notice. (Para 5, 9)

A show cause notice cannot be read
hypertechnically, and it is to be read
reasonably. And the person who is subject
to it must get the impression that he will
get an effective opportunity to rebut the
allegations contained in the show cause
notice and prove his innocence. (Para 11,
12)

A writ court refrains from interfering with such
notices unless they appear to be issued without
jurisdiction. However, there is an exception to
the general rule. When a show cause notice is
issued with clear pre-meditation, suggesting
that the authority has already made up its mind
regarding the outcome, a writ petition can be
justified. This is because a subsequent hearing
in such cases is unlikely to be impartial or
productive. Once a decision is effectively predetermined, further hearings do not serve their
intended purpose. This approach ensures that
the principles of natural justice and fair hearing
are upheld. (Para 10)

(1) It is a common principle of law that
unless an accusation is made in the show
cause notice, a finding with respect to the
same cannot be recorded on the same in
the final order. The principle behind the same
is that a person who is accused of a particular
act must be given a chance to defend himself
for the same. The authority cannot be allowed
to change the goal post while passing the order.
(Para 23)

There was a charge in the show cause notice
that the employee of the petitioner had taken
money, whereas the finding in the impugned
order is that an unauthorised person who was
not an employee of the petitioner had taken
money in the precinct of the fee plaza. The
offence that emerges from the impugned order
now is that the petitioner allowed unauthorised
people to be present in the precinct of the fee
plaza. There are similar findings w.r.t. other
allegations made in the show cause notice in the
impugned order. (Para 22, 24)

(2) The incidents mentioned did not take
place in the same month, and therefore,
the application of Clause 35(2) r/w Clause
20 of the terms and conditions appear to
be illegal as Clause 20 requires more than
three defaults in the same month. The
show cause notice, is pre-determined and the
impugned order travels beyond the scope of the
said show cause notice. (Para 25)
630 INDIAN LAW REPORTS ALLAHABAD SERIES
B. A quasi-judicial authority must record
reasons in support of its conclusions.
Insistence on reason is a requirement for
both
judicial
accountability
and
transparency. The ongoing judicial trend in all
countries committed to the rule of law and
constitutional governance is in favour of
reasoned decisions based on relevant facts.
Reasons in support of decisions must be cogent,
clear,
and
succinct.
Therefore,
for
the
development of law, the requirement of giving
reasons for the decision is of the essence and is
virtually a part of 'due process'. (Para 12)

The
inherent
power
to
blacklist
a
contractor is vested in the entity awarding
the contract, typically the State or its
instrumentalities. This authority does not
necessarily
require
explicit
statutory
authorisation
but
must
conform
to
fairness and reasonableness. (Para 13, 14)

(1) Principle of proportionality, dictates that
any
decision
to
blacklist
must
be
reasonable, fair, and commensurate with
the gravity of the alleged offense or
breach.
This
doctrine
ensures
that
the
punishment or action taken is appropriate and
proportional to the severity of the misconduct.

In the present case, the punishment of
debarment has been imposed in a very casual
manner without taking into consideration the
fact that the penalty had already been imposed
(for a sum of Rs. 8,00,000/- for the various
infractions that took place earlier) on the
petitioner and without any further illegality
committed by the petitioner, the petitioner was
burdened with the ban amounting to double
jeopardy (that appears to be harsh on the face
of the present facts). This casual manner
obviously has resulted in an arbitrary action and
cannot be sustained in the eyes of the law.
(Para 24, 25)

(2) General principles of natural justice,
which include Audi Alteram Partem (hear
the other side), Nemo Judex in Causa Sua
(no one can be a judge in their own case),
and the right to a reasoned decision. In
quasi-judicial proceedings, actions by State
authorities must comply with these principles to
ensure fairness in the process. Further, natural
justice requires that decisions are made
impartially and based on sound reasoning,
upholding the rights of the parties involved.

Before blacklisting a contractor, the entity
must provide a fair hearing, allowing the
contractor to present their case and
defend against the allegations or reasons
for blacklisting.

In the present case, upon perusal of the show
cause notice, the reply given by the petitioner,
and the impugned order, there seems to be a
major lacuna in the impugned order w.r.t.
addressing all the points and the submissions
that have been raised by the petitioner in their
reply. The nature of the show cause notice also
indicates a pre-meditated mind. (Para 19)

Specific proof has been provided by the
petitioner,
including
C.C.T.V.
footage,
documents in relation to Maafinama (given by
the persons who had filed the F.I.R. against the
petitioner company) that have not been taken
into account by the authority while coming to
the final decision. (Para 7)

(3) Principles of non-arbitrariness and
non-discrimination, which are essential to
ensure equality before the law. Actions by
State authorities, including blacklisting
decisions,
must
pass
the
test
of
reasonableness under Article 14 of the
Indian Constitution. This principle would
prevent arbitrary State actions and ensures that
decisions are made based on lawful and
relevant
grounds,
promoting
fairness
and
equality.

(4) Rule of law, which requires that every
action of the State or its instrumentalities must
be informed by reason and comply with legal
standards. Decisions must be based on lawful
and relevant grounds of public interest, ensuring
that the exercise of power is justified and
appropriate. (Para 14, 17, 18)

C. Scope of extraordinary writ jurisdiction
- Though while presiding over the extraordinary
writ jurisdiction, and Court cannot enter into the
facets of contract law. Nevertheless, even
though
the
fact
that
the
entire
controversy
herein
is
contractual
in
7 All. A.K. Construction Company Vs. Union of India & Ors.
631
nature, as seen from the Supreme Court
judgements, the writ court is duty bound
to step in when the State acts in a
whimsical,
arbitrary
and
capricious
manner. (Para 25)

Present
order
passed
by
the
authority
concerned suffers from the vice of violation of
principles of natural justice as well as it fails on
the altar of proportionality.

Writ petition allowed. Directions to issue
fresh show cause notice. (E-4)

Precedent followed:

1. Gp. Capt. Rajib Lochan Dey Vs U.O.I., 2007
SCC OnLine Cal 308 (Para 5)

2. Siemens Limited Vs Stt. of Mah. & ors., 2006
(12) SCC 33 (Para 5)

3. Oryx Fisheries Pvt. Ltd. Vs U.O.I. & ors.,
(2010) 13 SCC 427 (Para 5)

4. M/s Kulja Industries Ltd. Vs Chief Gen.
Manager W.T. Proj. BSNL & ors., Civil Appeal
No. 8944 of 2013 (Para 6)

5. K.I. Shephard Vs U.O.i., (1987) 4 SCC 431
(Para 10)

6. Erusian Equipment & Chemicals Ltd. Vs St. of
W.B., (1975) 1 SCC 70 (Para 14)

7. Radha Krishna Agarwal & ors. Vs St.of Bihar
& ors. (1977) 3 SCC 457 (Para 14)

Present
petition
assails
order
dated
31.05.2024, passed by the Chief General
Manager,
Commercial
Operations,
National Highway Authority of India.

(Delivered by Hon'ble Shekhar B. Saraf, J.)

1. Heard Sri Anoop Trivedi,
learned Senior Advocate assisted by
Sri Devansh Mishra and Sri Vibhu Rai,
learned counsel appearing for the
petitioner and Sri Mahendra Pratap,
learned
counsel
for
the
National
Highway
Authority
of
India
(hereinafter
referred
to
as
the
"NHAI").

2. This is a writ petition under
Article 226 of the Constitution of India
wherein the petitioner is assailing the
order dated March 31, 2024, passed by
the
Chief
General
Manager,
Commercial
Operations,
National
Highway Authority of India (being the
Respondent No. 3). This order was
passed pursuant to the show cause
notice issued upon the petitioner dated
May 24, 2024, to which the petitioner
had given a reply on May 27, 2024.

3. By the impugned order, the
petitioner's contract with the NHAI for
running
the
Kaithi
Fee
Plaza
was
terminated, and the petitioner was debarred
from the list of pre-qualified bidders for a
period of six months.

4. Sri Anoop Trivedi, learned Senior
Advocate for the petitioner, has submitted
that on a bare perusal of the impugned
show cause notice, it is clear that the said
show cause notice reeks of pre-meditation
and is a fait accompli by itself. He further
submits that a detailed reply was submitted
by the petitioner explaining each and every
point that has been raised in the show cause
notice. However, he submits that the
authorities have blatantly erred in law in
not considering the said reply of the
petitioner and have passed the impugned
orders in gross violation of the principles of
natural justice.

5. Sri Anoop Trivedi has brought to
our notice certain clauses of the show cause
notice and the reply given to the same by
the petitioner which have not found any
mention in the impugned order. Finally, the
632 INDIAN LAW REPORTS ALLAHABAD SERIES
petitioner submitted that the quantum of
damages/the termination and debarment
that has been issued as a penalty upon the
petitioner is against the principle of
proportionality and also amounts to double
jeopardy. This submission is based on the
fact that the petitioner had already paid the
penalty of Rs. 8,00,000/- for the technical
breaches committed by it. He submits that
after having paid the penalty, being
shouldered with the entire burden of
termination of contract and debarment for
the period of six months, is a punishment
that is way out of proportion. To buttress
his arguments, Sri Anoop Trivedi relied on
the Calcutta High Court judgment in Gp.
Capt. Rajib Lochan Dey -v- Union of
India reported in 2007 SCC OnLine Cal
308, which, in fact, dealt with the same
Clause 35 that is used in the present
contract. He further relied on the Supreme
Court Judgment of Siemens Limited -v-
State of Maharashtra and Others,
reported in 2006 (12) SCC 33 and the case
of Oryx Fisheries Private Limited -v-
Union of India and Others, reported in
(2010) 13 SCC 427 to emphasise on the
point that a show cause notice should not
be pre-meditated in nature and a writ
petition would be maintainable against such
a show cause notice.

6. Sri Anoop Trivedi, learned Senior
Advocate for the petitioner, further relied
on the Apex Court judgment in the case of
M/s Kulja Industries Limited -v- Chief
Gen. Manager W.T. Proj. BSNL & Ors.
(Civil Appeal No. 8944 of 2013). He relied
on the above judgment to give support to
his argument that in cases of blacklisting,
the threshold for such action would be high
and only based on proper scrutiny. This
judgement also lays down the principle that
even though the right of the petitioner may
be in the nature of contractual right, the
manner, the method and the motive behind
the decision of the authority, whether or not
contractual in nature, is subject to judicial
review on the touchstone of fairness,
relevance,
natural
justice,
nondiscrimination,
equality
and
proportionality. This judgment further
clarifies that the decision taken by the
authority must abide by the principle of
Audi alteram partem before the decision
culminates to a decision of blacklisting of a
person.

7. The last submission of the learned
counsel for the petitioner is with regard to
the various incidents that have been alleged
in the show cause notice. Specific proof has
been provided by the petitioner, including
C.C.T.V. footage, documents in relation to
Maafinama (given by the persons who had
filed the F.I.R. against the petitioner
company) that have not been taken into
account by the authority while coming to
the final decision.

8. Sri Mahendra Pratap, learned
counsel for the NHAI, has highlighted
several events that resulted in the issue of
the show cause notice. He further submits
that some of the events were extremely
glaring infractions and were required to be
punished. He further submits that even
though the penalty had been imposed upon
the petitioner, the same would not suffice
as the consequences of the various
malpractices of the petitioner needed to be
addressed by the authority concerned.
According to him, that is the reason as to
why, apart from the penalty, termination of
the contract was mandatory, coupled with
the ban on the petitioner organization for
six months.

9. Before proceeding with a further
examination of the present case it would be
7 All. A.K. Construction Company Vs. Union of India & Ors.
633
apposite to analyse and examine the
judgements cited before this court. The
Supreme Court, in the case of Siemens
Limited (supra), was accosted with an
issue wherein the show cause notice issued
to the appellant was pre-meditated in
nature. The Supreme Court held that in
such cases, the making of the show cause
notice becomes a mere formality as the
authority
had
pre-determined
the
appellant's liability. The Supreme Court
further held that such writ petitions would
be maintainable before the High Court. The
relevant paragraphs are provided below:

9. Although ordinarily a writ
court may not exercise its discretionary
jurisdiction in entertaining a writ petition
questioning a notice to show cause unless
the same inter alia appears to have been,
without jurisdiction as has been held by
this Court in some decisions including
State of U.P. v. Brahm Datt Sharma,
Special Director v. Mohd. Ghulam Ghouse
and
Union
of
India
v.
Kunisetty
Satyanarayana, but the question herein has
to be considered from a different angle viz.
when a notice is issued with premeditation,
a writ petition would be maintainable. In
such an event, even if the court directs the
statutory authority to hear the matter
afresh, ordinarily such hearing would not
yield any fruitful purpose. (See, K.I.
Shephard v. Union of India) It is evident in
the instant case that the respondent has
clearly made up its mind. It explicitly said
so both in the counter-affidavit as also in
its purported show-cause notice.

11. A bare perusal of the order
impugned before the High Court as also the
statements made before us in the counteraffidavit filed by the respondents, we are
satisfied that the statutory authority has
already applied its mind and has formed an
opinion
as
regards
the
liability
or
otherwise of the appellant. If in passing the
order
the
respondent
has
already
determined the liability of the appellant
and the only question which remains for its
consideration is quantification thereof, the
same does not remain in the realm of a
show-cause notice. The writ petition, in our
opinion, was maintainable.

10. The above paragraphs explain the
legal principle regarding the jurisdiction of
writ courts in India when addressing show
cause notices. Typically, a writ court
refrains from interfering with such notices
unless they appear to be issued without
jurisdiction. However, the above case
highlights an exception to the general rule.
When a show cause notice is issued with
clear pre-meditation, suggesting that the
authority has already made up its mind
regarding the outcome, a writ petition can
be justified. This is because a subsequent
hearing in such cases is unlikely to be
impartial or productive. This perspective
has been supported by the Supreme Court
in the case of K.I. Shephard -v- Union of
India, reported in (1987) 4 SCC 431,
which acknowledges that once a decision is
effectively pre-determined, further hearings
do not serve their intended purpose. It is
evident that the authority had already
concluded the appellant's liability, as
indicated by the counter-affidavit and the
show-cause notice. Therefore, the court
deemed the writ petition maintainable to
prevent an ineffective hearing process. This
approach ensures that the principles of
natural justice and fair hearing are upheld.

11. Similarly, in Oryx Fisheries Pvt.
Limited (supra), the Supreme Court
dealing with a similar issue held as follows:

31. It is of course true that the
show-cause
notice
cannot
be
read
634 INDIAN LAW REPORTS ALLAHABAD SERIES
hypertechnically and it is well settled that it
is to be read reasonably. But one thing is
clear that while reading a show-cause
notice the person who is subject to it must
get an impression that he will get an
effective
opportunity
to
rebut
the
allegations contained in the show-cause
notice and prove his innocence. If on a
reasonable reading of a show-cause notice
a person of ordinary prudence gets the
feeling that his reply to the show-cause
notice will be an empty ceremony and he
will merely knock his head against the
impenetrable wall of prejudged opinion,
such a show-cause notice does not
commence a fair procedure especially
when it is issued in a quasi-judicial
proceeding under a statutory regulation
which promises
to give
the
person
proceeded
against
a
reasonable
opportunity of defence.

32. Therefore, while issuing a
show-cause notice, the authorities must
take care to manifestly keep an open mind
as they are to act fairly in adjudging the
guilt or otherwise of the person proceeded
against and specially when he has the
power to take a punitive step against the
person after giving him a show-cause
notice.

33. The principle that justice must
not only be done but it must eminently
appear to be done as well is equally
applicable to quasi-judicial proceeding if
such
a
proceeding
has
to
inspire
confidence in the mind of those who are
subject to it.

12. From the above judgment, the
rationale that emerges is that a show cause
notice cannot be read hypertechnically, and
it is to be read reasonably. But the person
who is subject to it must get the impression
that he will get an effective opportunity to
rebut the allegations contained in the show
cause notice and prove his innocence. A
quasi-judicial authority must record reasons
in support of its conclusions. The ongoing
judicial trend in all countries committed to
the
rule
of
law
and
constitutional
governance is in favour of reasoned
decisions
based
on
relevant
facts.
Insistence on reason is a requirement for
both
judicial
accountability
and
transparency.
Reasons
in
support
of
decisions must be cogent, clear, and
succinct. Therefore, for the development of
law, the requirement of giving reasons for
the decision is of the essence and is
virtually a part of 'due process'.

13. In Kulja Industries Limited
(supra),
the
respondent
BSNL
had
blacklisted Kulja Industries Limited citing
fraudulent
billing
practices
despite
repayment of excess funds. The High Court
upheld this decision emphasising that
repayment did not negate the misconduct of
the appellant. The Supreme Court laid
down the principle with regard to the power
of a Government or Public Authority to
blacklist
contractors.
The
relevant
paragraphs are extracted below:

17. That apart the power to
blacklist a contractor whether the contract
be for supply of material or equipment or
for the execution of any other work
whatsoever is in our opinion inherent in the
party allotting the contract. There is no
need for any such power being specifically
conferred by statute or reserved by
contractor. That is because "blacklisting"
simply signifies a business decision by
which the party affected by the breach
decides not to enter into any contractual
relationship with the party committing the
breach. Between two private parties the
right to take any such decision is absolute
and untrammelled by any constraints
7 All. A.K. Construction Company Vs. Union of India & Ors.
635
whatsoever. The freedom to contract or not
to contract is unqualified in the case of
private parties. But any such decision is
subject to judicial review when the same is
taken by the State or any of its
instrumentalities. This implies that any
such decision will be open to scrutiny not
only on the touchstone of the principles of
natural justice but also on the doctrine of
proportionality. A fair hearing to the party
being blacklisted thus becomes an essential
precondition for a proper exercise of the
power and a valid order of blacklisting
made pursuant thereto. The order itself
being reasonable, fair and proportionate to
the gravity of the offence is similarly
examinable by a writ court. The legal
position on the subject is settled by a long
line of decisions rendered by this Court
starting
with
Erusian
Equipment
&
Chemicals Ltd. v. State of W.B. [(1975) 1
SCC 70] where this Court declared that
blacklisting has the effect of preventing a
person
from
entering
into
lawful
relationship with the Government for
purposes of gains and that the authority
passing any such order was required to
give a fair hearing before passing an order
blacklisting a certain entity. This Court
observed: (SCC p. 75, para 20)

"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. 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
opportunity to represent his case before he
is put on the blacklist."

18. Subsequent decisions of this
Court
in
M/s
Southern
Painters
v.
Fertilizers & Chemicals Travancore Ltd.
and Anr. [1994 Supp (2) SCC 699 : AIR
1994 SC 1277] ; Patel Engineering Ltd. v.
Union of India [(2012) 11 SCC 257 :
(2013) 1 SCC (Civ) 445] ; B.S.N. Joshi &
Sons Ltd. v. Nair Coal Services Ltd.
[(2006) 11 SCC 548] ; Joseph Vilangandan
v. Executive Engineer (PWD) [(1978) 3
SCC 36] among others have followed the
ratio of that decision and applied the
principle of audi alteram partem to the
process that may eventually culminate in
the blacklisting of a contractor.

19. Even the second facet of the
scrutiny which the blacklisting order must
suffer is no longer res integra. The
decisions of this Court in Radhakrishna
Agarwal v. State of Bihar [(1977) 3 SCC
457 : (1977) 3 SCR 249] ; E.P. Royappa v.
State of T.N. [(1974) 4 SCC 3 : 1974 SCC
(L&S) 165] ; Maneka Gandhi v. Union of
India [(1978) 1 SCC 248] ; Ajay Hasia v.
Khalid Mujib Sehravardi [(1981) 1 SCC
722 : 1981 SCC (L&S) 258] ; Ramana
Dayaram Shetty v. International Airport
Authority of India [(1979) 3 SCC 489] and
Dwarkadas Marfatia and Sons v. Board of
Trustees of the Port of Bombay [(1989) 3
SCC 751] have ruled against arbitrariness
and discrimination in every matter that is
subject to judicial review before a writ
court exercising powers under Article 226
or Article 32 of the Constitution. It is also
well settled that even though the right of
the writ petitioner is in the nature of a
contractual right, the manner, the method
and the motive behind the decision of the
authority whether or not to enter into a
contract is subject to judicial review on the
touchstone of fairness, relevance, natural
justice, non-discrimination, equality and
proportionality. All these considerations
that go to determine whether the action is
sustainable in law have been sanctified by
judicial pronouncements of this Court and
are of seminal importance in a system that
636 INDIAN LAW REPORTS ALLAHABAD SERIES
is committed to the rule of law. We do not
consider it necessary to burden this
judgment by a copious reference to the
decisions on the subject. A reference to the
following passage from the decision of this
Court in M/s Mahabir Auto Stores & Ors.
v. Indian Oil Corporation Ltd., [(1990) 3
SCC 752] should, in our view, suffice:
(SCC pp. 760-61, para 12)

"11. It is well settled that every
action of the State or an instrumentality of
the State in exercise of its executive power,
must be informed by reason. In appropriate
cases, actions uninformed by reason may
be questioned as arbitrary in proceedings
under Article 226 or Article 32 of the
Constitution. Reliance in this connection
may be placed on the observations of this
Court in Radhakrishna Agarwal v. State of
Bihar [(1977) 3 SCC 457 : (1977) 3 SCR
249] . ... In case any right conferred on the
citizens which is sought to be interfered,
such action is subject to Article 14 of the
Constitution, and must be reasonable and
can be taken only upon lawful and relevant
grounds of public interest. Where there is
arbitrariness in State action of this type of
entering or not entering into contracts,
Article 14 springs up and judicial review
strikes such an action down. Every action
of the State executive authority must be
subject to rule of law and must be informed
by reason. So, whatever be the activity of
the public authority, in such monopoly or
semi-monopoly dealings, it should meet the
test of Article 14 of the Constitution. If a
governmental action even in the matters of
entering or not entering into contracts, fails
to satisfy the test of reasonableness, the
same would be unreasonable. ... It appears
to us that rule of reason and rule against
arbitrariness and discrimination, rules of
fair play and natural justice are part of the
rule of law applicable in situation or action
by State instrumentality in dealing with
citizens in a situation like the present one.
Even though the rights of the citizens are in
the nature of contractual rights, the
manner, the method and motive of a
decision of entering or not entering into a
contract, are subject to judicial review on
the
touchstone
of
relevance
and
reasonableness, fair play, natural justice,
equality and non-discrimination in the type
of the transactions and nature of the
dealing as in the present case."

14. Upon a perusal of the relevant
paragraphs above, it is evident that the
judgement brings forward several critical
principles concerning the judicial scrutiny
of decisions to blacklist contractors by
governmental or public authorities. First,
the inherent power to blacklist a contractor
is vested in the entity awarding the
contract,
typically
the
State
or
its
instrumentalities. This authority does not
necessarily
require
explicit
statutory
authorisation but must conform to fairness
and reasonableness. It is also to be noted
that any governmental or public authority's
decision to blacklist a contractor is open to
judicial review, ensuring adherence to
natural justice principles, particularly audi
alteram partem and the doctrine of
proportionality. This means courts can
examine such decisions to ensure they are
just
and
balanced.
Further,
before
blacklisting a contractor, the entity must
provide a fair hearing, allowing the
contractor to present their case and defend
against the allegations or reasons for
blacklisting. The decision to blacklist must
also be reasonable, fair, and proportionate
to the gravity of the alleged offence or
breach,
avoiding
arbitrariness
or
discrimination. Additionally, actions by
State authorities, including blacklisting
decisions, must pass the reasonableness test
under Article 14 of the Indian Constitution,
7 All. A.K. Construction Company Vs. Union of India & Ors.
637
which ensures equality before the law and
prevents
arbitrary
State
actions.
Furthermore,
precedents
and
legal
standards established in prior judicial
decisions, such as Erusian Equipment &
Chemicals Ltd. -v- State of W.B., reported
in (1975) 1 SCC 70 and subsequent cases
like Radha krishna Agarwal and Ors. -v-
State of Bihar & Ors., reported in (1977) 3
SCC 457, shed light on the legal
framework guiding the judicial review of
blacklisting decisions. These principles
collectively aim to ensure that the power to
blacklist is exercised judiciously, upholding
fairness,
reasonableness,
and
proportionality
while
safeguarding
contractors' rights to a fair hearing and
defense.

15. The judgement delivered by
Justice Dipankar Datta (as he then was) in
the judgement of the Calcutta High Court
in Gp. Capt. Rajib Lochan Dey's case
(supra) dealt with the same clause as is
prevalent in the terms and conditions
between the parties in the present lis.

16. Upon consideration of the various
aspects, the Calcutta High Court held the
importance
of
compliance
with
the
principles of natural justice. Relevant
paragraphs are delineated below:

29. Accordingly, this Court would
proceed to consider the controversy raised
herein on merits overruling the primary
objection of Mr. Basak. However, this
Court is not oblivious of the other
objections relating to maintainability of the
writ petition raised by Mr. Basak which
shall be dealt with at a later stage of this
judgement.

30. The inequality of bargaining
power of the NHAI and the petitioner
admits of no doubt. Being the weaker party,
the petitioner could obtain a means of
livelihood only upon acceptance of the
terms imposed by the NHAI. If the
petitioner had not accepted the contract,
the NHAI could have several other
intending contractors to choose from.
Having accepted Clause 35, it is clear that
choice of the petitioner, a retired defence
employee, was limited and he had no other
option. Clause 35 of the contract, in the
manner
it
is
worded,
is
clearly
unconscionable and unreasonable and
suffers
from
the
vice
of
enabling
discrimination and arbitrary action.

31. If one is conferred a drastic
power, it necessarily carries with it a duty
to exercise such power with a good degree
of circumspection so that it is not abused.
By the impugned notice, the NHAI has
terminated the contract that was to subsist
till 15.6.07. No reason has been assigned
since
Clause
35
expressly
excludes
assigning of any reason. Although the
contract does not specifically provide that
prior to termination of a contract in
exercise of power conferred by Clause 35
thereof a notice is to be issued calling upon
the contractor to show-cause as to why the
contract shall not be terminated, can it be
said that NHAI has unfettered and
unbridled power to terminate a contract at
its sweet will without notice and existence
of any cogent reason? The answer has to
be in the negative.

32. This Court would not venture
to declare Clause 35 as void in the absence
of a prayer made by the petitioner in this
regard. But even if it had been challenged,
on facts and in the circumstances of this
case, this Court is inclined to hold that
Clause 35 could be saved from being struck
down and construed as reasonable if one
reads natural justice into it and this would
be
well
nigh-permissible
being
in
consonance with fairness in action. If so
638 INDIAN LAW REPORTS ALLAHABAD SERIES
read, an opportunity of showing cause
ought to have been given to the petitioner
prior to taking the harshest step of
terminating the contract. In fact, the NHAI
by reading natural justice in Clause 35 had
initially asked the petitioner to show-cause
as to why the contract shall not be
terminated. There appears to be no cogent
reason as to what prevented issuance of
such notice prior to the impugned action.
The NHAI cannot at its option read natural
justice in Clause 35 at one stage and
exclude it at a subsequent stage. One
cannot
in
the
context
ignore
the
development
intervening
the
action
imposing penalty on 12.10.06 and the
impugned termination of contract effected
on 8.1.07, i.e. the fact that only two days
prior to the order terminating the contract
an agency appointed by the NHAI itself to
offer consultancy services had, regarding
the six monthly performance of the
petitioner,
duly
certified
that
the
performance of the petitioner's security
agency was satisfactory and that it was
carrying out its duties and responsibilities
effectively and efficiently and further that
the management and administration at the
toll plaza is co-operative and sincere to
raise toll collection. Importantly, despite
opportunity granted to the NHAI to deal
with the contents of the writ petition and
the supplementary affidavit by filing a
composite counter affidavit, the NHAI has
not
disputed
the
contents
of
the
supplementary affidavit. The contents of the
supplementary
affidavit
stand
uncontroverted and the same are deemed to
have been admitted by the NHAI. In view of
such
contemporaneous
document,
the
contents whereof have not been disputed by
the NHAI, it is hard to accept the
contention that the petitioner's service
being utterly unsatisfactory and resulting in
the NHAI incurring financial loss, it was
justified in terminating the contract. The
submission of Mr. Basak that the NHAI
while making the order dated 12.10.06 had
reserved its right to take further action
does not advance the case of NHAI any
further. Right of the NHAI to take further
action cannot be in doubt but that too
ought to have been preceded by a notice
since the NHAI owed a duty to the
petitioner to act fairly. The effect of the
impugned notice is to curtail the period for
which the petitioner was entitled to
continue subject to compliance with all
formalities. If only an opportunity had been
granted to the petitioner, for whatever it is
worth, such report could have been used by
him if not as a sword but as a shield to
counter the accusations of the NHAI
alongwith any other point available to him
in defence. After all, reasons cited by the
petitioner for decrease in toll collection
were serious in nature warranting serious
consideration.
That
would
have
necessitated a reasoned decision upon
proper application of mind, which in turn,
could bear manifestation of a fair, just and
reasonable
approach
to
seal
the
petitioner's fate instead of the impugned
notice which hardly reflects the mind of the
decision
maker
and
the
materials
considered by him prior to issuing it. Had it
been so, the Writ Court's scope of enquiry
would have been further restricted and it
could well turn out to be not an
appropriate case for interference, keeping
in mind that it does not act as a bull in a
china shop.

33. It has been noticed that
Clause 35 empowers the NHAI to terminate
the contract by issuing a notice but without
assigning any reason. Similar expression
fell
for
consideration
in
Shrilekha
Vidharthi (supra). It was held that "without
assigning any cause" is not to be equated
with "without existence of any cause". It
7 All. A.K. Construction Company Vs. Union of India & Ors.
639
merely
meant
that
the
reason
for
termination need not be communicated but
absence of or non-existence of any cogent
reason would be arbitrary.

34. It is the stand of the NHAI in
its counter affidavit that "the decision to
terminate the contract was based, inter
alia, on the three surveillance reports as
also on the reply to the show-cause which
were found unsatisfactory". If one were to
consider the report of SOWIL Ltd. dated
6.1.07 with an open mind, it really would
reveal a chink in the NHAI's armoury and
lay to rest any accusation of unsatisfactory
performance. It is difficult to agree that
lapses detected by the NHAI for which a
penalty was imposed on the petitioner
could form the basis for termination of the
contract. That really amounts to double
jeopardy, which is not permissible in our
constitutional scheme. Also the subsequent
report of SOWIL Ltd. is hardly of any
relevance since the same was not in
existence when the impugned notice was
issued.

35. This Court thus holds that in
not giving any opportunity to the petitioner
to
show-cause
against
proposed
termination of contract and there being no
sufficient reason to justify the impugned
action, the NHAI has acted unfairly,
unreasonably, in an arbitrary manner and
in violation of principles of natural justice,
thereby infringing the petitioner's right
guaranteed
by
Article
14
of
the
Constitution of India.

17. Upon a perusal of the relevant
paragraphs above, one realises that the
judgment
sheds
light
on
several
fundamental
principles
regarding
the
judicial review of administrative actions,
particularly concerning the termination of
contracts by public authorities such as the
National Highways Authority of India
(NHAI).
Primarily,
public
authorities
exercising significant powers, like contract
termination, must adhere to natural justice
principles, ensuring the affected party has
an opportunity to be heard or to show cause
before adverse action is taken. This
safeguards against unreasonableness and
arbitrariness, requiring that administrative
actions, including contract terminations, are
based on valid reasons and reflect a fair,
just, and reasonable approach. Furthermore,
actions by public authorities affecting
individual rights are subject to scrutiny
under Article 14 of the Indian Constitution,
which guarantees equality before the law
and prohibits arbitrary actions. Objections
related to non-disclosure of material facts
may be disregarded by courts unless the
non-disclosure is crucial and affects the
case outcome. While courts may prefer to
dismiss writ petitions citing the availability
of alternative remedies, they may still hear
the case on its merits if justified. The
principle of double jeopardy is also
highlighted, wherein imposing penalties
and then using the same grounds for
contract
termination
is
generally
impermissible.
Moreover,
contractual
clauses
allowing
termination
without
assigning reasons must not be interpreted to
enable arbitrary actions; the absence of
communicated reasons does not imply the
absence of reasons altogether. These
principles collectively ensure that public
authorities' power to terminate contracts is
exercised judiciously, upholding fairness,
reasonableness, and adherence to natural
justice while safeguarding against arbitrary
and unreasonable administrative actions.

18. The principles that emerge from
the above judgements are as follows:

a.
First,
the
principle
of
proportionality, which dictates that any
640 INDIAN LAW REPORTS ALLAHABAD SERIES
decision to blacklist must be reasonable,
fair, and commensurate with the gravity of
the alleged offense or breach. This doctrine
ensures that the punishment or action taken
is appropriate and proportional to the
severity of the misconduct.

b. Second, the general principles
of natural justice, which include Audi
Alteram Partem (hear the other side), Nemo
Judex in Causa Sua (no one can be a judge
in their own case), and the right to a
reasoned
decision.
In
quasi-judicial
proceedings, actions by State authorities
must comply with these principles to
ensure fairness in the process.