# Amit Kumar v. State of U.P. & Anr

- **Citation:** (2020) 11 ILRA 383
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2020-09-30
- **Case number:** WRIT - C No. 14747 of 2020
- **Bench:** Manoj Kumar Gupta, Dr. Yogendra Kumar Srivastava
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/amit-kumar-v-state-of-u-p-anr-45412
- **Pages:** 19

## Headnote

C.S.C.

Useless
Formality
Theory-Contracts
awarded
by
Department
of
Food
Controller for certain centres cancelled for
years 2020-21 ans 2021-22 and Petitioner
blacklisted-as his mother was owner of
rice
mill-which
was
one
of
the
disqualification-three days time granted
to
submit
response-Petitioner
instead
replying
sought
three
weeks
timeimpugned order passed-not illegal-mother
being
owner
is
admitted
fact-false
declaration given admitted-order cannot
be illegal merely for being in violation of
natural justice.W.P. dismissed.

Held, It would be in such situation that' useless
formality theory' may be pressed into if it would
be reasonable to believe that a fair hearing
would make no difference or that grant of a
384 INDIAN LAW REPORTS ALLAHABAD SERIES
fresh opportunity of hearing would not change
the ultimate conclusion to be reached by the
decision maker. In such situations, in our view,
there would be no legal duty to grant a fresh
opportunity of hearing and it may not be
necessary to strike down the action and remit
the matter back to the authority concerned to
take a fresh decision.(para 38)

W.P. dismissed. (E-9)

List of Cases Cited:-

## Text

_Characters 0–39,921 of 64,316. This is a partial read: ask again with offset=39921 for what follows._

11 All. Amit Kumar Vs. State of U.P. & Anr.
383

"6. The Act has been enacted with
a view to provide a special procedure for
recovery of debts due to the banks and the
financial institutions. There is a hierarchy of
appeal provided in the Act, namely, filing of
an appeal under Section 20 and this fast-track
procedure cannot be allowed to be derailed
either by taking recourse to proceedings
under Articles 226 and 227 of the
Constitution or by filing a civil suit, which is
expressly barred. Even though a provision
under an Act cannot expressly oust the
jurisdiction of the court under Articles 226
and 227 of the Constitution, nevertheless,
when there is an alternative remedy available,
judicial prudence demands that the Court
refrains from exercising its jurisdiction under
the said constitutional provisions. This was a
case where the High Court should not have
entertained the petition under Article 227 of
the Constitution and should have directed the
respondent to take recourse to the appeal
mechanism provided by the Act."

8. Thus entertaining the writ petition
granting interim relief have serious adverse
impact on the right of bank and other
financial institutions to recover their dues.

9. So far as the recovery of loan
during lock down due to Covid-19
Pandemic is concerned, Reserve Bank of
India
has
already
announced
certain
moratorium on loan repayment. However,
the moratorium is only deferral and not a
waiver on payment of loan amount
otherwise it would put the financial
viability of banks at risk and depositors
interest in jeopardy. The petitioner cannot
be allowed to sit on the fence and wait and
thereafter coming to the writ court for the
redressal of his grievance.

10. In view of the aforesaid facts and
circumstances, as the petitioner has an
alternative
remedy
before
the
Debts
Recovery Tribunal under Section 17 of the
Act, we are not inclined to exercise our
extraordinary jurisdiction in the matter. The
impugned notice does not suffer from any
error or illegality, hence the writ petition
sans any merit is accordingly, dismissed.
----------
(2020)11ILR A383
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 30.09.2020

BEFORE
THE HON'BLE MANOJ KUMAR GUPTA, J.
THE HON'BLE DR. YOGENDRA KUMAR
SRIVASTAVA, J.

WRIT - C No. 14747 of 2020

Amit Kumar ...Petitioner
Versus
State of U.P. & Anr. ...Respondents

Counsel for the Petitioner:
Sri Kshitij Shailendra, Sri Vikrant Singh
Parihar

Counsel for the Respondents:
C.S.C.

Useless
Formality
Theory-Contracts
awarded
by
Department
of
Food
Controller for certain centres cancelled for
years 2020-21 ans 2021-22 and Petitioner
blacklisted-as his mother was owner of
rice
mill-which
was
one
of
the
disqualification-three days time granted
to
submit
response-Petitioner
instead
replying
sought
three
weeks
timeimpugned order passed-not illegal-mother
being
owner
is
admitted
fact-false
declaration given admitted-order cannot
be illegal merely for being in violation of
natural justice.W.P. dismissed.

Held, It would be in such situation that' useless
formality theory' may be pressed into if it would
be reasonable to believe that a fair hearing
would make no difference or that grant of a
384 INDIAN LAW REPORTS ALLAHABAD SERIES
fresh opportunity of hearing would not change
the ultimate conclusion to be reached by the
decision maker. In such situations, in our view,
there would be no legal duty to grant a fresh
opportunity of hearing and it may not be
necessary to strike down the action and remit
the matter back to the authority concerned to
take a fresh decision.(para 38)

W.P. dismissed. (E-9)

List of Cases Cited:-

1. M/s. Vindhyawasini T. Transport Vs St. of U.P.
& ors.,2018(4)ADJ 40 (DB)

2.M/s Erusian Equipment & Chemicals Ltd. Vs
St. of W.B. & anr., (1975) 1 SCC 70

3.Raghunath Thakur Vs St. of Bihar & ors,
(1989) 1 SCC 229

4.Mahabir Auto Stores & ors. Vs Indian Oil
Corporation & ors., (1990) 3 SCC 752

5.Gronsons Pharmaceuticals (P) Ltd. & anr.Vs St.
of U.P. & ors, AIR 2001 SC 3707

6.M/s. Kulja Industries Limited Vs Chief General
Manager, W.T. Project, BSNL & ors.,(2014) 14
SCC 731

7.M/s
Southern
Painters
Vs
Fertilizers
&
Chemicals Travancore Ltd. & anr.,1994 Supp (2)
SCC 699

8.Patel Engineering Ltd. Vs U.O.I., (2012) 11
SCC 257

9.B.S.N.Joshi & Sons Ltd. Vs Nair Coal Services
Ltd. & ors,(2006) 11 SCC 548

10.Joseph Vilangandan Vs The Executive
Engineer (PWD), Ernakulam & ors.,(1978) 3 SCC
36

(Delivered by Hon'ble Dr. Yogendra Kumar
Srivastava, J.)

1. Heard Sri Kshitij Shailendra,
learned counsel for the petitioner and
learned Standing Counsel for the State
respondents.

2. The present petition has been filed
primarily seeking to raise a challenge to the
order dated 21.07.2020 (annexure 1 to the
writ petition) passed by the Divisional
Food Controller, Kanpur Division, Kanpur
(respondent no. 2) whereby the contracts
awarded by the Department of Food and
Civil Supplies, Uttar Pradesh, in favour of
the petitioner, in respect of certain centres
in District Farrukhabad, for the years 202021 and 2021-22 have been cancelled, and
further the petitioner has been blacklisted
by the department.

3. The principal ground sought to be
canvassed in order to challenge the order
dated 17.07.2020 is that the same has been
passed in violation of the principles of
natural justice and without affording a
reasonable opportunity to the petitioner. It
has been contended that the eligibility
criteria prescribed under the government
order dated 20.04.2018 is merely in the
nature of a guideline and the contract
granted to the petitioner could not be
cancelled on the basis of the conditions
prescribed therein. It is also sought to be
argued that the order impugned has the
effect of permanently blacklisting the
petitioner which is not permissible under
law. In this regard, reliance has been placed
upon a judgment of this Court in M/s.
Vindhyawasini T. Transport Vs. State of
U.P. and others1.

4.

Learned
Standing
Counsel
appearing for the State respondents has
supported the order by submitting that the
award of handling and transport contracts
by the Department of Food and Civil
Supplies is governed by the policy
guidelines contained under the government
11 All. Amit Kumar Vs. State of U.P. & Anr.
385
order dated 20.04.2018 and the same are of
a binding nature. It is submitted that the
aforementioned guidelines contain a clear
condition whereunder persons whose close
relatives are wholesale dealers or Aarhatiya
are ineligible for award of contracts. It is
pointed out that along with the application
submitted by the petitioner for award of
contract, an affidavit had been filed stating
that no near relative of the petitioner was a
wholesale dealer or Aarhatiya. The aforesaid
fact having been found to be incorrect
inasmuch as upon a complaint the matter was
inquired into and it was found that the
petitioner's mother is an owner of rice mill;
accordingly, a show cause notice was given
to the petitioner, and in view of the
undisputed fact that the petitioner was
ineligible for the award of the the contract
and that he had given a false declaration in
his affidavit, the order impugned has been
passed, which suffers from no illegality.

5. Rival contentions now fall for
consideration.

6. A perusal of the material which has
been placed on record indicates that the
award of handling and transport contracts by
the Department in Food and Civil Supplies
Government of U.P. is governed in terms of
the policy guidelines contained under a
government order dated 20.4.2018. The
eligibility conditions prescribed therein are
contained under Clause 9 of the said policy
guidelines, which is being extracted below :-

9-
vkosnu
gsrq vugZ
O;fDr@Q
eZ
1& vk
2& ikfjokfjd tu rFkk
muds fudVre lEcU/kh
vFkok
Hkkxhnkj
,sls
Bsdsnkj ftldk iwoZ esa
Hkk0[kk0fu0] [kk| foHkkx
vFkok
lEc}
dz;
,tsUlh ls fuyfEcr py
jgk gks vFkok CySd
fYkLV gqvk gks] ds
lgHkkfxrk dh QeZ ;k
dEiuh vkosnu gsrq vgZ
ugha gksasxsA
3& ,slk Bsdsnkj ftlus
foHkkx ls izkIr Bsdk dk
dk;Z djrs le; fdlh
dkykcktkjh
vFkok
vkijkf/kd xfrfof/k;ksa esa
lafYkIr ik;k x;k gks
vFkok mlus Bsds dks
fdlh vU; dks lcysV
fd;k gks rFkk ,slk
O;fDr ftlds fo:}
vko';d
oLrq
vf/kfu;e&1955
ds
micU/kksa ds v/khu nks"k
fl} gks] mls vkosnu
gsrq vugZ ekuk tk;sxkA

7. In terms of a subsequent
government order dated 25.5.2018 the
conditions of eligibility under Clause 9 of
the previous government order have been
further clarified. Clause 2 of the subsequent
government order dated 25.5.2018 is being
extracted below :-

2& ifjogu ,oa gS.Mfyx uhfr ds
fcUnw la[;k&09 esa ikfjokfjd tu rFkk fudV
laCka/kh ds vUrxZr fuEuor lfEefyr ekus tk;sxsa%&

1.
Spouse
2.
Father
3.
Mother
4.
Son
5.
Son's wife
6.
Son's son
7.
Son's son's wife
386 INDIAN LAW REPORTS ALLAHABAD SERIES
8.
Son's daughter
9.
Son's daughter's husband
10.
Great grand son
11.
Great grand son's wife
12.
Daughter
13.
Daughter's husband
14.
Daughter's son
15.
Daughter's son wife
16.
Daughter's Daughter
17.
Daughter's Daughter's husband
18.
Grand Father
19.
Grand mother
20.
Great Grand Father
21.
Great Grand Mother
22.
Mother's Father/ mother
23.
Brother/ Sister
24.
Spouse of brother/ sister
25.
Spouse's father/mother
26.
Spouse's mother/ sister
27.
Spouse's father/ mother
28.
Spouse's brother/ sister
29.
Spouse of Spouse's brother/ sister
30.
Mother's brother/ sister and their
spouse
31.
Father's brother/ sister and their
spouse
32.
Grand father/ mother of spouse

8. The guidelines contained under
government order dated 20.4.2018 also
contain a proforma of the affidavit required
to be submitted along with the application
which clearly provides that in the event the
applicant has made concealment of any
fact, the candidature/contract would stand
cancelled.

9. The petitioner has not disputed the
fact that a show cause notice dated
17.7.2020 had been duly served upon him
requiring him to submit his explanation by
20.7.2020 in respect of a complaint
regarding his near relative being the owner
of a rice mill and to explain as to why the
aforesaid fact was concealed in the
affidavit submitted by the petitioner at the
time
of
participation
in
the
tender
proceedings. In terms of the show cause
notice, the petitioner was required to
submit an explanation for the same failing
which he was to be blacklisted.

10. It appears that instead of submitting
a specific response to the show-cause notice,
the petitioner submitted an application on
20.7.2020 making a request for a further three
weeks' time in order to submit his reply.
Taking into consideration the fact that the
Clause 9 of the guidelines under the
government
order
dated
20.4.2018
prescribing the eligibility conditions for
participation in the process of award of
contract makes persons whose near relatives
are mill owners or Aarhatiya as ineligible and
the petitioner's mother having been reported
to be owner of a rice mill on the basis of an
inquiry made by the District Food Marketing
Officer Farrukhabad, the affidavit submitted
by the petitioner while participating in etender process, was found to be false, and
accordingly in terms of the guidelines
contained under the government orders dated
20.4.2018 and 25.5.2018, the contracts
awarded to the petitioner have been cancelled
and the petitioner has been blacklisted by the
department.

11. The issue with regard to
entitlement to a notice and a right to be
11 All. Amit Kumar Vs. State of U.P. & Anr.
387
heard before blacklisting came up in the
case of M/s Erusian Equipment &
Chemicals Ltd. Vs. State of West Bengal
& Anr.2 and referring to the powers of the
State under Article 298 of the Constitution
of India3 to carry on trade or business, it
was held that the exercise of such powers
and functions in trade by the State is
subject to Part III of the Constitution and
the State while having the right to trade has
the duty to observe equality and cannot
choose
to
exclude
persons
by
discrimination. The relevant observations
made in the judgment are as follows:-

"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
any purpose. The State can carry on
executive function by making a law or
without making a law. The exercise of such
powers and functions in trade by the State
is subject to Part III 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 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 depriving a
person 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 and purchase of materials has a
legitimate interest or expectation. When the
State acts to the prejudice of a person it has
to be supported by legality.

13.
But
for
the
order
of
blacklisting, the petitioner would have been
entitled to participate in the purchase of
cinchona. Similarly the respondent in the
appeal would also have been entitled but
for the order of blacklisting to tender
competitive rates.

14. The State can enter into
contract with any person it chooses. No
person has a fundamental right to insist that
the Government must enter into a contract
with him. A citizen has a right to earn
livelihood and to pursue any trade. A
citizen has a right to claim equal treatment
to enter into a contract which may be
proper, necessary and essential to his
lawful calling.

15. The blacklisting order does
not pertain to any particular contract. The
blacklisting
order
involves
civil
consequences. It casts a slur. It creates a
barrier between the persons blacklisted and
the
Government
in
the
matter
of
transactions.
The
blacklists
are
"instruments of coercion".

16. In passing an order of
blacklisting the Government department
acts under what is described as a
standardised code. This is a code for
internal
instruction.
The
Government
departments make regular purchases. They
maintain list of approved suppliers after
taking into account the financial standard
of the firm, their capacity and their past
performance. The removal from the list is
made for various reasons. The grounds on
which blacklisting may be ordered are if
the proprietor of the firm is convicted by
court of law or security considerations to
warrant or if there is strong justification for
believing that the proprietor or employee of
the firm has been guilty of malpractices
such as bribery, corruption, fraud, or if the
388 INDIAN LAW REPORTS ALLAHABAD SERIES
firm
continuously
refuses
to
return
Government dues or if the firm employs a
Government servant, dismissed or removed
on account of corruption in a position
where he could corrupt Government
servants. The petitioner was blacklisted on
the ground of justification for believing that
the firm has been guilty of malpractices
such as bribery, corruption, fraud. The
petitioners were blacklisted on the ground
that there were proceedings pending against
the petitioners for alleged violation of
provisions under the Foreign Exchange
Regulations Act.

17.
The
Government
is
a
Government of laws and not of men. It is
true that neither the petitioner nor the
respondent has any right to enter into a
contract but they are entitled to equal
treatment with others who offer tender or
quotations for the purchase of the goods.
This privilege arises because it is the
Government which is trading with the
public
and
the
democratic
form
of
Government demands equality and absence
of arbitrariness and discrimination in such
transactions. Hohfeld treats privileges as a
form of liberty as opposed to a duty. The
activities of the Government have a public
element and, therefore, there should be
fairness and equality. The State need not
enter into any contract with any one but if it
does so, it must do so fairly without
discrimination
and
without
unfair
procedure. Reputation is a part of a person's
character and personality. Blacklisting
tarnishes one's reputation.

18. Exclusion of a member of the
public from dealing with a State in sales
transactions has the effect of preventing
him from purchasing and doing a lawful
trade in the goods in discriminating against
him in favour of other people. The State
can impose reasonable conditions regarding
rejection and acceptance of bids or
qualifications of bidders. Just as exclusion
of the lowest tender will be arbitrary,
similarly exclusion of a person who offers
the highest price from participating at a
public auction would also have the same
aspect of arbitrariness.

19. Where the State is dealing
with individuals in transactions of sales and
purchase of goods, the two important
factors are that an individual is entitled to
trade
with
the
Government
and
an
individual is entitled to a fair and equal
treatment with others. A duty to act fairly
can be interpreted as meaning a duty to
observe certain aspects of rules of natural
justice. A body may be under a duty to give
fair consideration to the facts and to
consider the representations but not to
disclose to those persons details of
information in its possession. Sometimes
duty to act fairly can also be sustained
without providing opportunity for an oral
hearing. It will depend upon the nature of
the
interest
to
be
affected,
the
circumstances in which a power is
exercised and the nature of sanctions
involved therein.

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."

12. The aforementioned proposition
that no order of blacklisting could be
passed without affording opportunity of
hearing to the affected party was reiterated
in the case of Raghunath Thakur Vs.
11 All. Amit Kumar Vs. State of U.P. & Anr.
389
State of Bihar & Ors.4 wherein it was
stated as follows:-

"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 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
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 that parties
affected by any order should have right of
being heard and making representations
against the order..."

13. The exercise of the executive
power of the State or its instrumentalities in
entering into a contract with private parties
flowing
from
Article
298
of
the
Constitution including the power to enter or
not
into
a
contract
came
up
for
consideration in the case of Mahabir Auto
Stores
&
Ors.
Vs.
Indian
Oil
Corporation & Ors.5 and it was held that
the decision of the State or any of its
instrumentalities to enter or not into a
contract being an administrative action the
same would be open to a challenge on the
ground of violation of Article 14 of the
Constitution and would also be subject to
the
power
of
judicial
review.
The
observations made in the judgment are as
follows:-

"12. 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 Radha Krishna Agarwal v. State of
Bihar (1977) 3 SCC 457. It appears to us, at
the
outset,
that
in
the
facts
and
circumstances of the case, the respondent
company IOC is an organ of the State or an
instrumentality of the State as contemplated
under Article 12 of the Constitution. The
State acts in its executive power under
Article 298 of the Constitution in entering
or not entering in contracts with individual
parties. Article 14 of the Constitution
would be applicable to those exercises of
power. Therefore, the action of State organ
under Article 14 can be checked. See
Radha Krishna Agarwal v. State of Bihar at
p. 462, but Article 14 of the Constitution
cannot and has not been construed as a
charter for judicial review of State action
after the contract has been entered into, to
call upon the State to account for its actions
in its manifold activities by stating reasons
for such actions. In a situation of this nature
certain
activities
of
the
respondent
company which constituted State under
Article 12 of the Constitution may be in
certain circumstances subject to Article 14
of the Constitution in entering or not
entering into contracts and must be
reasonable and taken only upon lawful and
relevant consideration; it depends upon
facts and circumstances of a particular
transaction whether hearing is necessary
and reasons have to be stated. In case any
right conferred on the citizens which is
sought to be interfered, such action is
subject to Article 14 of the Constitution,
390 INDIAN LAW REPORTS ALLAHABAD SERIES
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 semimonopoly 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. In this connection
reference may be made to E.P. Royappa v.
State of Tamil Nadu (1974) 4 SCC 3, Maneka
Gandhi v. Union of India (1978) 1 SCC 248,
Ajay Hasia v. Khalid Mujib Sehravardi (1981)
1 SCC 722, R.D. Shetty v. International Airport
Authority of India (1979) 3 SCC 489 and also
Dwarkadas Marfatia and Sons v. Board of
Trustees of the Port of Bombay (1989) 3 SCC
293. 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 nondiscrimination in the type of the transactions
and nature of the dealing as in the present case.

x x x x x

18. ...we are of the opinion that
decision of the State/public authority under
Article 298 of the Constitution, is an
administrative
decision
and
can
be
impeached on the ground that the decision
is arbitrary or violative of Article 14 of the
Constitution of India on any of the grounds
available in public law field. It appears to
us that in respect of corporation like IOC
when
without
informing
the
parties
concerned, as in the case of the appellantfirm herein on alleged change of policy and
on that basis action to seek to bring to an
end to course of transaction over 18 years
involving large amounts of money is not
fair action, especially in view of the
monopolistic nature of the power of the
respondent in this field. Therefore, it is
necessary to reiterate that even in the field
of public law, the relevant persons
concerned or to be affected, should be
taken into confidence. Whether and in what
circumstances that confidence should be
taken into consideration cannot be laid
down on any strait-jacket basis. It depends
on the nature of the right involved and
nature of the power sought to be exercised
in a particular situation. It is true that there
is discrimination between power and right
but whether the State or the instrumentality
of a State has the right to function in public
field or private field is a matter which, in
our opinion, depends upon the facts and
circumstances of the situation, but such
exercise of power cannot be dealt with by
the State or the instrumentality of the State
without
informing
and
taking
into
confidence, the party whose rights and
powers are affected or sought to be
affected, into confidence. In such situations
most often people feel aggrieved by
exclusion of knowledge if not taken into
confidence."

14. The requirement of grant of
opportunity
to
show
cause
before
blacklisting was restated in the case of
Gronsons Pharmaceuticals (P) Ltd. &
Anr. Vs. State of Uttar Pradesh & Ors.6
and it was held that since the order
blacklisting of an approved contractor
11 All. Amit Kumar Vs. State of U.P. & Anr.
391
results in civil consequences, the principle
of audi alteram partem is required to be
observed.

15. The power to blacklist a
contractor was held to be inherent in the
party allotting the contract and the freedom
to contract or not to contract was held to be
unqualified in the case of private parties;
however when the party is State, the
decision to blacklist would be open judicial
review on touchstone of proportionality and
the principles of natural justice. The
relevant observations made in this regard in
the case of M/s Kulja Industries Limited
Vs. Chief General Manager, W.T.
Project, BSNL & Ors.7 are as under:-

"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
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."

16. The aforementioned judgment has
taken note of the fact that the principle of
audi alteram partem has been held to be
applicable
to
the
process
that
may
eventually culminate in the blacklisting of a
contractor in the earlier judgments in M/s
Southern Painters Vs. Fertilizers &
Chemicals Travancore Ltd. & Anr.8,
Patel Engineering Ltd. Vs. Union of
India9, B.S.N. Joshi & Sons Ltd. Vs.
Nair Coal Services Ltd. & Ors.10, and
Joseph Vilangandan Vs. The Executive
Engineer (PWD), Ernakulam & Ors.11.

17. It was held that even though the
right of the petitioner may be 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 the powers of judicial
review on the touchstone of fairness,
relevance,
natural
justice,
nondiscrimination, equality and proportionality.
In this regard reference was made to earlier
decisions in Radha Krishna Agarwal &
Ors. Vs. State of Bihar & Ors.12, E.P.
Royappa Vs. State of Tamil Nadu &
Anr.13, Maneka Gandhi Vs. Union of
India & Anr.14, Ajay Hasia & Ors. Vs.
Khalid Mujib Sehravardi & Ors.15,
Ramana
Dayaram
Shetty
Vs.
International Airport Authority of India
& Ors.16 and Dwarkadas Marfatia and
Sons Vs. Board of Trustees of the Port of
Bombay17.

18. The legal position governing
blacklisting in USA and UK was also
392 INDIAN LAW REPORTS ALLAHABAD SERIES
considered and it was noticed that in USA
the term "debarring" is used by the statutes
and
the
courts
and
comprehensive
guidelines have been issued in this regard.
The observations made in the judgment in
this respect are as follows:-

"21. The legal position governing
blacklisting of suppliers in USA and UK is
no different. In USA instead of using the
expression
"blacklisting"
the
term
"debarring" is used by the statutes and the
courts. The Federal Government considers
"suspension and debarment" as a powerful
tool for protecting taxpayer resources and
maintaining integrity of the processes for
federal
acquisitions.
Comprehensive
guidelines are, therefore, issued by the
government for protecting public interest
from those contractors and recipients who
are non-responsible, lack business integrity
or engage in dishonest or illegal conduct or
are
otherwise
unable
to
perform
satisfactorily. These guidelines prescribe
the following among other grounds for
debarment:

(a)
Conviction
of
or
civil
judgment for.--

(1) Commission of fraud or a
criminal
offense
in
connection
with
obtaining,
attempting
to
obtain,
or
performing a public or private agreement or
transaction;

(2) Violation of Federal or State
antitrust
statutes,
including
those
proscribing
price
fixing
between
competitors,
allocation
of
customers
between competitors, and bid rigging;

(3)
Commission
of
embezzlement,
theft,
forgery,
bribery,
falsification or destruction of records,
making false statements, tax evasion,
receiving stolen property, making false
claims, or obstruction of justice; or (4)
Commission of any other offense indicating
a lack of business integrity or business
honesty that seriously and directly affects
your present responsibility;

(b) Violation of the terms of a
public agreement or transaction so serious
as to affect the integrity of an agency
program, such as.--

(1) A wilful failure to perform in
accordance with the terms of one or more
public agreements or transactions;

(2) A history of failure to perform
or of unsatisfactory performance of one or
more public agreements or transactions; or

(3) A wilful violation of a
statutory
or
regulatory
provision
or
requirement
applicable
to
a
public
agreement or transaction;

(c) x x x x x

(d) Any other cause of so serious
or compelling a nature that it affects your
present responsibility.

22. The guidelines also stipulate
the factors that may influence the debarring
official's
decision
which
include
the
following:

(a) The actual or potential harm
or impact that results or may result from
the wrongdoing.

(b) The frequency of incidents
and/or duration of the wrongdoing.

(c) Whether there is a pattern or
prior history of wrongdoing.

(d) Whether contractor has been
excluded or disqualified by an agency of
the Federal Government or have not been
allowed to participate in State or local
contracts or assistance agreements on a
basis of conduct similar to one or more of
the causes for debarment specified in this
part.

(e) Whether and to what extent
did the contractor plan, initiate or carry out
the wrongdoing.

(f) Whether the contractor has
accepted responsibility for the wrongdoing
11 All. Amit Kumar Vs. State of U.P. & Anr.
393
and recognized the seriousness of the
misconduct.

(g) Whether the contractor has
paid or agreed to pay all criminal, civil and
administrative liabilities for the improper
activity, including any investigative or
administrative
costs
incurred
by
the
government, and have made or agreed to
make full restitution.

(h)
Whether
contractor
has
cooperated fully with the government
agencies during the investigation and any
court or administrative action.

(i) Whether the wrongdoing was
pervasive
within
the
contractor's
organization.

(j) The kind of positions held by
the individuals involved in the wrongdoing.

(k) Whether the contractor has
taken appropriate corrective action or
remedial measures, such as establishing
ethics training and implementing programs
to prevent recurrence.

(l) Whether the contractor fully
investigated the circumstances surrounding
the cause for debarment and, if so, made
the result of the investigation available to
the debarring official."

19. In Patel Engineering Ltd. Vs.
Union of India9, referring to the authority of
the State and its instrumentalities to enter into
contracts in view of the power conferred
under Article 298 of the Constitution it was
taken note of that the right to make a contract
includes the right to not to make a contract;
however, such right including the right to
blacklist which could be exercised by the
State
is
subject
to
the
constitutional
obligation to obey the command of Article
14. The observations made in the judgment in
this regard are being extracted below:-

"13. The concept of "blacklisting"
is explained by this Court in Erusian
Equipment & Chemicals Limited v. State
of W.B. (1975) 1 SCC 70, as under: (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."

14. The nature of the authority of
State to blacklist persons was considered
by this Court in the abovementioned case
and took note of the constitutional
provision (Article 298), which authorises
both the Union of India and the States to
make contracts for any purpose 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 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
State to enter into a contract, everybody has
a right to be treated equally when State
seeks to establish contractual relationships.
The effect of excluding a person from
entering into a contractual relationship with
State would be to deprive such person to be
treated equally with those, who are also
engaged in similar activity.

15. It follows from the judgment
in Erusian Equipment case that the decision
of State or its instrumentalities not to deal
with certain persons or class of persons on
account of the undesirability of entering
into contractual relationship with such
persons is called blacklisting. State can
decline
to
enter
into
a
contractual
relationship with a person or a class of
persons for a legitimate purpose. The
394 INDIAN LAW REPORTS ALLAHABAD SERIES
authority of 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 authority is that 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 by the State in a given case can
vary depending upon various factors."

20. The aforementioned legal position
has been considered in a recent judgment of
this Court in M/s Baba Traders Vs. State
of U.P. and others18.

21. We may thus reiterate that the
right to enter into a contractual relationship
is inherent in every person capable of
entering into a contract with a concomitant
right also not to enter into a contract. The
right to refuse to enter into a contract
however does not vest with the State and its
instrumentalities in the same manner as it
vests with a private individual. The right to
enter into a contract by the State flows
from the power under Article 298 of the
Constitution and together with it is the right
not to enter into a contract and the choice to
blacklist any particular person with whom
the State does not wish to enter into a
contract. This decision however in case it is
taken by the State or any of its
instrumentalities is to be made reasonably
and in accord with the principles of natural
justice.

22. An order of blacklisting has the
effect of depriving a person of equality of
opportunity in the manner of public
contract and in a case where the State acts
to the prejudice of a person it has to be
supported by legality. The activities of the
State having the public element quality
must be imbued with fairness and equality.

23. The order of blacklisting involves
civil consequences and has the effect of
creating a disability by preventing a person
from the privilege and advantage of
entering into lawful relationship with the
government therefore fundamentals of fair
play would require that the concerned
person should be given an opportunity to
represent his case before he is put on the
blacklist. A fair hearing to the party before
being blacklisted thus becomes an essential
pre-condition for a proper exercise of the
power and a valid order of blacklisting
made pursuant thereto. The applicability of
the principle of audi alteram partem and
the necessity of issuance of show cause
notice also become imperative before
passing of any such order of blacklisting.

24. In the instant case, the petitioner
was duly served with a show cause notice
calling upon him to submit his explanation
in respect of the eligibility conditions
provided under the guidelines for award of
handling and transport contracts under the
relevant government orders and to clarify
the statement of fact made in this regard in
his affidavit filed along with his application
which had been filed while participating in
the e-tender.

25. Counsel for the petitioner apart
from reiterating that the petitioner had been
granted only three days' time to submit a
response to the notice did not dispute the
fact stated in the report which had been
submitted by the District Food Marketing
Officer Farrukhabad wherein it had been
found that the petitioner's mother was the
owner of a rice mill namely M/s. Amit Rice
11 All. Amit Kumar Vs. State of U.P. & Anr.
395
Mill.