M/S KULJA INDUSTRIES LIMITEDversusCHIEF GEN. MANAGER W.T. PROJ. BSNL AND ORS.

                        [2013) 14 S.C.R. 430


A                M/S KULJA INDUSTRIES LIMITED
                                   v.
      CHIEF GEN. MANAGER W.T. PROJ. BSNL AND ORS.
               (Civil Appeal No. 8944 of 2013)
                         OCTOBER 4, 2013
B
           [T.S. THAKUR AND VIKRAMAJIT SEN, JJ.]

       Contract - Contract with Government Company - For
  supply of goods - Purchaser black-listed the supplier
C permanently on the ground that it committed gross misconduct
  and irregularities by receiving excessive payments from the
  purchaser - Held: Power to black-list a contractor is inherent
  in the party allotting the contract - But if such decision is
  taken by State or its instrumentalities, it is subject to judicial
D review and open to scrutiny on the touchstone of fairness,
  relevance, natural justice, non-discrimination, equality and
  proportionality - 'Debarment' though recognised as an
  effective method for disciplining deviant suppliers, it is never
  permanent - Period of debarment would invariably depend
E upon the nature of the offence committed by the erring
  contractor - In the facts of present case, permanent
  debarment is too harsh - Matter remanded back to competent
  authority to determine the period of debarment - Constitution
  of India, 1950 - Arts.226 and 32 - Judicial Review.
F      Respondent-company (BSNL) entered into contract
  with the appellant-Company. BSNL black-listed the
  appellant permanently on the ground that the appellant
  had committed gross misconduct and irregularities by
  receiving excessive payments from BSNL and thereby
G wrongfully causing loss to the said company. The
  appellant denied these allegations contending that BSNL
  Policy/Manual did not provide for punitive action in the
  nature of blacklisting and that excess payment at best

H                                430
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.             431
          MANAGER W.T. PROJ. BSNL
could be said to be irregularity which had been cured by      A
refund of the amount. The question for consideration in
the present appeal is whether BSNL could have
blacklisted the appellant for allotment of future contracts
for all times to come.
                                                              B
    Allowing the appeal, the Court

     HELD: 1. A literal construction of the provisions of
paras 31 and 32 of the bid document would mean that the
power to disqualify or blacklist a supplier is available to
the purchaser only in the three situations enumerated in      C
paras 31 and 32 and no other. Any such interpretation
would, however, give rise to anomalous results. It is
because, in cases where a supplier is found guilty of
much graver offences, failures or violations, resulting in
much heavier losses and greater detriment to the              D
purchasers in terms of money, reputation or prejudice to
public interest may go unpunished simply because all
such acts of fraud, misrepresentation or the like have not
been specifically enumerated as grounds for blacklisting
of the supplier in paras 31 and 32 of the tender document.    E
That could never be the true intention of the purchaser
wh~n it stipulated paras 31 and 32 as conditions of the
tender document by which the purchaser has reserved
to itself the right to disqualify or blacklist bidders for
breach or violation committed by them. If bidders who         F
commit a breach of a lesser degree could be punished
by an order of blacklisting there is no reason why a
breach of a more serious nature should go unpunished,
be ignored or rendered inconsequential by reason only
of an omission of such breach or violation in the text of     G
paras 31 and 32 of the tender document. Paras 31 and
32 cannot, in that view, be said to be exhaustive; nor is
the power to blacklist limited to situations mentioned
therein. [Para 16) [442-H; 443-A-D)
    2. The power to blacklist a contractor whether the        H
    432     SUPREME COURT REPORTS              [2013] 14 S.C.R.

A contract be for supply of material or equipment or for the
  execution of any other work whatsoever is 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
s 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
c 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
0
  principles of natural justice but also on the doctrine of
  proportionality. A fair hearing to the party 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 order itself being
E reasonable, fair and proportionate to the gl'avity of the
  offence is similarly examinable by a writ Court. [Para 17]
  [443-E-H; 444-A]

       Erusian Equipment and Chemicals Ltd. vs. State of West
F Bengal and Anr. (1975) 1 SCC 70: 1975 (2) SCR 674; Mis
  Southern Painters vs. fertilizers and Chemicals Travancore
  Ltd. and Anr. AIR 1994 SC 1277; Patel Engineering Ltd.
  Union of India (2012) 11 SCC 257; B.S.N. Joshi and Sons
  Ltd. vs. Nair Coal Services Ltd. and Ors. (2006) 11 SCC 548:
G 2006 (8) Suppl. SCR 11; Joseph Vilangandan vs. The
  Executive Engineer, (PWD) Emakulam and Ors. (1978) 3
  sec 36: 1978 (3) SCR 514 - relied on.
        3. Every matter that is subject to judicial review before
    a Writ Court exercising powers under Article 226 or Article
H
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.             433
          MANAGER W.T. PROJ. BSNL
32 of the Constitution cannot be arbitrary or                 A
discriminatory. 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,     B
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 is             c
committed to the rule of law. [Para 19) [445-C-D]

     Radha krishna Agarwal and Ors. vs. State of Bihar and
Ors. (1977) 3 SCC 457: 1977 (3) SCR 249; E.P. Royappa
vs. State of Tamil Nadu and Anr. (1974) 4 sec 3: 1974 (2)
SCR 348; Maneka Gandhi vs. Union of India and Anr. (1978) D
1 SCC 248: 1978 (2) SCR 621; Ajay Hasia and Ors. vs.
Khalid Mujib Sehravardi and Ors. (1981) 1 SCC 722: 1981
(2) SCR 79; R.D. Shetty vs. International Airport Authority of
India and Ors., (1979) 3 SCC 489: 1979 (3) SCR 1014;
Dwarkadas Marfatia and sons vs. Board of Trustees of the E
Port of Bombay (1989) 3 SCC 751; Mis Mahabir Auto Stores
and Ors. vs. Indian Oil Corporation Ltd. (1990) 3 SCC 752:
1990 (1) SCR 818 - relied on.

     4. 'Debarment' is recognised and often used as an        F
effective method for disciplining deviant suppliers/
contractors who may have committed acts of omission
and commission or frauds including misrepresentations,
falsification of records and other breaches of the
regulations under which such contracts were allotted.         G
What is notable is that the 'debarment' is never
permanent and the period of debarment would invariably
depend upon the nature of the offence committed by the
erring contractor. [Para 24) [449-G; 450-A]
    5. In the present case according to the respondent-       H
    434     SUPREME COURT REPORTS             [2013] 14 S.C.R.


A BSNL, the appellant had fraudulently withdrawn a huge
  amount of money which was not due to it,· in collusion
  and conspiracy with the officials of the respondent-
  corporation. Even so permanent debarment from future
  contracts for all times to come may sound too harsh and
B heavy a punishment to be considered reasonable
  especially when (a) the appellant is supplying bulk of its
  manufactured products to the respondent-BSNL and (b)
  The excess amount received by it has already been paid
  back. [Para 25) [450-B-C]
c         6. A remand back to the competent authority would
    be a more appropriate option to determine the period for
    which the appellant would remain blacklisted. This is,
    firstly because blacklisting is in the nature of penalty the
    quantum whereof is a matter that rests primarily with the
D   authority competent to impose the same. Secondly,
    because while determining the period for which the
    blacklisting should be effective, the respondent-
    Corporation may for the sake of objectivity and
    transparency formulate broad guidelines to be followed
E   in such cases. Different periods Qf debarment depending
    upon the gravity of the offences, violations and breaches
    may be prescribed by such guidelines. While, it may not
    be possible to exhaustively enumerate all types of
    offences and acts of misdemeanour, or violations of
F   contractual obligations by a contractor, the respondent-
    Corporati~n may do so as far as possible to reduce if not
    totally eliminate arbitrariness in the exercise of the power
    vested in it and inspire confidence in the fairness of the
    order which the competent authority may pass against a
G   defaulting contractor. [Para 26) [450-E-H; 451-A-BJ
                        Case Law Reference:
      1975 (2) SCR 67 4          relied on            Para 17
      AIR 1994 SC 1277           relied on            Para 18
H
     KULJA INDUSTRIES LIMITED v. CHIEF GEN.                   435
           MANAGER W.T. PROJ. BSNL
  (2012) 11 sec 251             relied on              Para 18        A
  2006 (8) Suppl. SCR 11        relied on              Para 18
  1978 (3) SCR 514              relied on              Para 18
  1977 (3) SCR 249              relied on              Para 19        B
  1974 (2) SCR 348              relied on              Para 19
  1978 (2) SCR 621              relied on              Para 19
  1981 (2) SCR 79               relied on              Para 19
                                                                      c
  1979 (3) SCR 1014             relied on               Para 19
  (1989) 3 sec 151              relied on              Para 19
  1990 (1) SCR 818              relied on              Para 19
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.                   D
8944 of 2013.

    From the Judgment & Order dated 06.04.2011 of the High
Court of Judicature at Bombay in Writ Petition No. 2289 of
2011.                                                                 E

    Mukul Rohatgi, Pravin H. Parekh, Sumit Goel, Ritika Sethi,
Abhishek Vinod Deshmukh (for Parekh & Co.) for the Appellant.

    Vikas Bansal, Madhurima Mridual, D.S. Mahra, Gaurav
Agrawal, Arvind Kumar Sharma for the Respondents.                     F

    The Judgment of the Court was delivered by

    T.S. THAKUR, J. 1. Leave granted.

     2. The short question that falls for determination in this       G
appeal is whether the respondent-Bharat Sanchar Nigam
Limited (for short 'BSNL') could have blacklisted the appellant
for allotment of future contracts for all times to come. High Court
of Judicature at Bombay before whom the blacklisting order
was assailed by the appeliant has answered that question in           H
   436       SUPREME COURT REPORTS                [2013] 14 S.C.R.


A the affirmative and dismissed Writ Petition No.2289 of 2011
  filed by the appellant giving rise to the present appeal.

       3. Two tender notices for supply of Permanent Lubricated
  HOPE Pipe (Telecom Ducts) and Installation of O.F. Cable
  through Blowing Technique were issued by BSNL in the year
8
  2004 and 2005. It is common ground that the appellant-
  company emerged successful in regard to both the tender
  notices. It is also not in dispute that several orders for supply
  of the material were placed with the appellant-company during
  the years 2004-2006 and that goods were supplied to various
C consignee units of BSNL pursuant to the same. The appellant's
  case is that a "receipt certificate" was issued in its favour after
  delivery of the goods and that bills for payment of the price of
  the goods were raised in triplicate to the Chief Controller of
  Accounts, WTP BSNL, Mumbai from time to time. The
D appellant's further case is that a single account to receive 95%
  of the payment due from BSNL was maintained by it and since
  the amounts received from the respondent-BSNL by cheques
  did not carry any particulars of the consignment for which such
  payment was being made it could, in no way, discover excess
E payment, if any, releasep by BSNL against the bills sent by the
  appellant.

       4. The appellant's further case is that on gaining
  knowledge about the excess payments received by it, an offer
F for reconciliation of the accounts was made to the BSNL and
  since any such reconciliation was likely to take 30 to 45 days,
  the appellant offered to adjust the excess amount credited to
  its account towards the outstanding bills on an ad hoc basis.
  A letter dated 10th May, 2006 was, according to the appellant,
G addressed to the respondent-BSNL in that regard.

        5. The respondent-BSNL on the other hand has a different
  story to tell. According to it four of its officers had abused their
  official position and fraudulently generated 'voucher numbers'
  on the dupiicate and triplicate copies of the bills submitted by
H the appellant to facilitate payments as if the said bills were
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.                    437
   MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
genuine thereby causing wrongful loss to the respondent-BSNL          A
and a corresponding gain to the appellant. There was in this
process an excess payment of Rs.7.98 crores made and
credited to the account of the appellant by the accounts officer
of respondent-BSNL.
                                                                      B
     6. Taking note of the fraudulent payments made to the
appellant, the BSNL lodged an FIR with CBI ACB Mumbai
against one of its Senior Accounts Officers and a Director of
the appellant-company alleging commission of offences
punishable under Section 120B read with Section 420 Indian            C
Penal Code and Section 13(2) read with Section 13(1)(d) of
Prevention of Corruption Act, 1988. Investigation that followed
has culminated in a charge-sheet filed before the Special
Judge for CBI cases, Bombay in which four officials of the
BSNL including D. Tripathi-Senior Accounts Officer, Laxman
Dixit-Assistant Accounts Officer, Krishnakumari Patnaik-Junior        D
Accounts Officer, Poolchand Yadav-Cashier and Lalit Gupta-
Director and Bhavani Sharma-Consultant of the appellant-
company have been arraigned as accused persons.

     7. What is important for the present is that by a letter dated   E
21st April, 2010, BSNL blacklisted the appellant permanently
on the ground that the appellant had committed gross
misconduct and irregularities by receiving excessive payments
amounting to Rs. 7,98,55,508/- from BSNL thereby wrongfully
causing loss to the said company. The appellant denied these          F
allegations, inter alia, contending that BSNL Policy/Manual did
not provide for punitive action In the nature of blacklisting and
that excess payment at best was an irregularity which had been
cured by refund of the amount in question. The appellant also
alleged that reconciliation of accounts revealed that the             G
appellant was entitled to an amount, far in excess of the
payments received by it. That assertion was repeated in a legal
notice sent by the appellant-company but since BSNL took no
 corrective action in terms of the reconciliation, W.P. No.4536
 of 2010 was filed before the High Court of Judicature at             H
    438       SUPREME COURT REPORTS                [2013) 14 S.C.R.


A Bombay in which it assailed the blacklisting order. The High
  Court allowed the petition on the short ground that the appellant
  had not been afforded any opportunity of being heard before
  the blacklisting order was issued by the respondent. The High
  Court did not go into the merits of the dispute but reserved
B liberty to the appellant to raise all such contentions as were
  open to it if and when BSNL issued a show cause notice for
  blacklisting it again. The BSNL was left free to pass a fresh
  order and take a final decision in the matter within six weeks
  from the date of the issue of the show cause notice.
c       8. A show cause notice was accordingly issued by BSNL
  on 4th November, 2010 to which the appellant filed a reply. The
  appellant was also called for a personal hearing in support of
  its reply to the show cause notice as directed by the High Court.
  By an order dated 15th January, 2011 BSNL once again
D directed the blacklisting of the appellant, inter alia, holding that
  the appellant had defrauded BSNL by using duplicate and
  triplicate copies of the bills that stood already cleared for
  payment. These bogus and fraudulent claims made under
  bogus and fabricated bills were then processed by some of the
E officers of the BSNL for payment resulting in doubl~ and at
  times triple payment in favour of the appellant. The relevant
  portion of the blacklisting order is to the following effect:

                 "Hence, the supplier with a clear intention to
F         defraud BSNL, WTP, Mumbai, have prepared duplicate
          and triplicate copies of bills already processed for
          payment and have again put up the same for payment
          with BSNL. Thus, in short tl1ese were bogus and/or
          fraudulent claims made on the basis of forged and/or
          fabricated bills/documents. Thereafter, by joining hands
G
          with some of the erring officers of BSNL, the supplier has
          got the afore mentioned duplicate and triplicate copies
          of bills processed for payment and have fraudulently
          received double/triple payment(s) for supplying material
          only once.
H
 KULJA INDUSTRIES LIMITED v. CHIEF GEN.                 439
MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
        Therefore, by not only claiming but also receiving A
 double and/or triple payment on the basis of forged!
 fabricated/duplicate and triplicate copies of same bills,
 the supplier has committed gross fraud on the public
 exchequer. The fraudulent act on the part of supplier got
 completed by not only claiming such bogus payments B
 but also by receiving the same from BSNL. Moreover, by
 letter dated 10th May, 2006, the supplier has not only
 acknowledged but have also accepted the fact of
 claiming as also accepting aforesaid bogus payments
 and hence the supplier had agreed for reconciliation of c
 same after deducting such bogus payments. If the
 accounts would not have reconciled, the supplier would
 have caused huge losses to the public exchequer.

        Hence, there is every apprehension that if the
 supplier is allowed to deal in any manner with the BSNL D
 in future, the supplier will venture into committing same
 and/or similar fraud (s) on the public exchequer and
 therefore, it is not at all in the interest of public exchequer
 that the supplier continues to be authorised supplier of
 BSNL.                                                           E
       Hence, in view of the all the above facts and
 circumstances and the entire record and proceedings of
 this case, it is possible for this organisation to take a view
 to permanent banning and impose penalty upon the F
 supplier so as to prevent the supplier from dealing with
 entire BSNL,' throughout the country in any manne'r,
 consequently stopping all the future business
 transactions of entire BSNL with the supplier.

      Hereby Mis. Kulja Industries Ltd., Solan (Himachal G
 Pradesh) is permanently banned and is consequently
 prevented from having any business dealing with entire
 BSNL through the country.

       This is issued with the approval of the competent        H
    440       SUPREME COURT REPORTS               [2013] 14 S.C.R.

A         authority.

                                                                 Sdl-
                                             AGM (MM) 15.1.2011

B                                     O!o CGM, WTP, Mumbai-54n

         9. Aggrieved by the above order the appellant once again
    approached the High Court in W.P. No. 2289 of 2011 which
    was heard and dismissed by a Division Bench of the High Court
C   in terms of the order impugned in this appeal. The High Court
    was of the opinion that reconciliation of the account had proved
    that the appellant had received payment twice over for the
    supplies made by it and that merely because the excess
    payment received had been subsequently refunded by the
    appellant did not obliterate the act of misconduct and fraud. The
D   High Court observed:

                 "In the order impugned, the Authority has stated that
          on the reconciliation of the account, it was found as a fact
          that the Petitioner has received payment twice for the
E         supply of the same material, because the supply was
          ongoing and the amount was found to be payable to the
          Petitioner, that was paid to him. Mere payment of the
          amount does not wipe out the fact that the Petitioner had
          submitted the Bills claiming double payment. In our
F         opinion, in view of this finding, no interference is called
          for in the order impugned. The Petition is rejected. No
          costs."      ·

          10. The present appl;!al calls in question the correctness
    of the above order of the High Court as noticed earlier.
G
        11. Appearing for the appellant-company, Mr. Mukul
    Rohatgi, strenuously argued that debarring the appellant
    permanently and for all times to come was wholly arbitrary and
    unjustified. It was contended that the blacklisting order had
H
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.                    441
   MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
serious civil consequences for the person blacklisted making          A
it obligatory for the Authority passing the order to act fairly and
reasonably. Inasmuch as respondent-BSNL had blacklisted the
appellant permanently, the decision was neither'fair nor
reasonable. Paras 31 and 32 of the bid document also,
according to the learned counsel, provides for blacklisting only      B
for a "suitable period". This implies that blacklisting had to be
for a definite period and not for all times to come. Since the
products manufactured by the appellant were mostly, if not
entirely, supplied for consumption to the respondent-BSNL, any
order permanently blacklisting the appellant from entering into       c
contracts making supplies was tantamount to rendering the
appellant jobless and economically defunct. No such order of
 blacklisting could, therefore, be sustained as the punishment
 implicit in such an order was totally disproportionate to the
 gravity of the offence allegedly committed by the appellant.         D

     12. On behalf of the respondent-BSNL, it was argued by
Mr. Bansal that the blacklisting order under challenge was not
relatable to paras 31 and 32 of the bid document. The order
simply declared the petitioner-company ineligible for allotment
of any contract in future in terms of para 2.3 of the tender          E
document, the relevant portion wherefore reads as under:

     "2.3 Disqualification Clause: The supplier/ Manufacturers
     in the following category are not eligible to bid in the said
     tender.                                                          F
     i.

     ii. Firms against whom investigation cases are registered
     with the CBI or other statutory investigations agencies of
     State/Central Govt.                                              G

     iii       "

    13. It was further contended by the learned counsel that
even if the order was held to be referable to paras 31 and 32
                                                                      H
    442       SUPREME COURT REPORTS                 [2013] 14 S.C.R.


A   of the bid document, an order permanently blacklisting the
    appellant was also justified having regard to the nature of the
    fraud committed by it in collusion with the officers of the
    respondent-corporation and involving a huge amount of nearly
    eight crores.
B
        14. We may at the outset deal with the contention whether
    paras 31 and 32 of the, bid document to which Mr. Rohtagi has
    made reference is the· only source of the power to blacklist a
    defaulting contractor. These paras are as under:

c         "31. Purchaser reserves the right to disqualify the supplier
          for a suitable period who habitually failed to supply the
          equipment in time. Further, the suppliers whose
          equipment do not perform satisfactory in the field in
          accordance with the specifications may also be
D         disqualified for a suitable period as decided by the
          purchaser.

          32. Purchaser reserves the right to blacklist a bidder for
          a suitable period in case he fails to honour his bid without
          sufficient grounds."
E
         15. A plain reading of the above would show that BSNL,
    the purchaser has reserved the right to disqualify any supplier
    who

F        (a) habitually fails to supply the equipment in time or (b)
         the equipment supplied by the supplier does not perform
       · satisfactory in the field in accordance with the
         specifications or

          (c) fails to honour his bid without sufficient grounds.
G
       16. A literal construction of the provisions of paras 31 and
  32 extracted above would mean that the power to disqualify or
  blacklist a supplier is available to the purchaser only in the three
  situations enumerated in paras 31 and 32 and no other. Any
H such interpretation would, however, give rise to anomalous
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.                     443
   MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
results. We say so because in cases where a supplier is found          A
guilty of much graver offences, failures or violations, resulting
in much heavier losses and greater detriment to the purchasers
in terms of money, reputation cir prejudice to public interest may
go unpunished simply because all such acts of fraud,
misrepresentation or the like have not been specifically               B
enumerated as grounds for blacklisting of the supplier in paras
31 and 32 of the tender document. That could in our opinion
never be the true intention of the purchaser when it stipulated
paras 31 and 32 as conditions of the tender document by which
the purchaser has reserved to itself the right to disqualify or        c
blacklist bidders for breach or violation committed by them. If
bidders who commit a breach of a lesser degree could be
punished by an order of blacklisting there is no reason why a
breach of a more serious nature should go unpunished, be
ignored or rendered inconsequentis:il by reason only of an
                                                                       D
omission of such breach or violation in the text of paras 31 and
32 of the tender document. Paras 31 and 32 cannot, in that
view, be said to be exhaustive; nor is the power to blacklist
limited to situations mentioned therein.

     17. That apart the power to blacklist a contractor wheth~ir       E
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          F
signifies a business decision by wh,ich tile 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             G
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 scr:.itiny not
only on the touchstone of the principles of natural justice but also   H
    444      SUPREME COURT REPORTS                 [2013) 14 S.C.R.


A on the doctrine of proportionality. A fair hearing to the party
  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 order itself being reasonable, fair
  and proportionate to the gravity of the offence is similarly
B 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
  West Bengal and Anr. (1975) 1 SCC 70 where this Court
  declared that blacklisting has the effect of preventing a person
c 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:

          "20. Blacklisting has the effect of preventing a person
D         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
E         require tha,t 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
F Painters v. Fertilizers & Chemicals Travancore Ltd. and Anr.
  AIR 1994 SC 1277; Patel Engineering Ltd. Union of India
  (2012) 11 SCC 257; B.S.N. Joshi & Sons Ltd. v. Nair Coal
  Services Ltd. & Ors. (2006) 11 SCC 548; Joseph Vilangandan
  v. The Executive Engineer, (PWD) Ernakulam & Ors. (1978)
G 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
H decisions of this Court in Radha krishna Agarwal and Ors. v.
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.                     445
   MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
State of Bihar & Ors. (1977) 3 SCC 457; E.P. Royappa v.                A
State of Tamil Nadu and Anr. (1974) 4 SCC 3; Maneka
Gandhi v. Union of India and Anr. (1978) 1 SCC 248; Ajay
Hasia and Ors. v. Khalid Mujib Sehravardi and Ors., (1981)
1 SCC 722; R. D. Sheffy v. International Airport Authority of
India and Ors., (1979) 3 SCC 489 and Dwarkadas Marfatia                B.
and sons v. Board of Trustees of the Port ofBombay (1989)
3 sec 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    c
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
                                                                       0
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 is committed to the rule of law. We do not
consider it necessary to burden this judgment by a copious
                                                                       E
reference to the decisions on the subject. A reference to the
following passage from the decision of this Court in Mis
Mahabir Auto Stores & Ors. v. Indian Oil Corporation Ltd.,
(1990) 3 sec 752 should, in our view, suffice:

     "11. It is well settled that every action of the State or an      F
     instrumentality o( the State in exercise of its executive
     power, must be informed by reason. Jn 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           G
     placed on the obseNations of this Court in Miss Radha
     Krishna Agarwal and Ors. v. State of Bihar and Ors.,
     [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            H
    446       SUPREME COURT REPORTS                [2013] 14 S.C.R.


A         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
B         State executive authority must be subject to rule of Jaw
          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
c         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
D
          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
E         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."

F       20. The legal position governing blacklisting of suppliers
  in USA and UK.is ro 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
G 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
H illegal conduct or are otherwise unable to perform satisfactorily.
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.                 447
   MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
These guidelines prescribe the following among other grounds       A
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    B
            performing a public or private agreement or
            transaction;

     (2)    Violation of Federal or State antitrust statutes,
            including those proscribing price fixing between       c
            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        D
            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         E
            seriously and directly affects your present
            responsibility;

     (b)    iolation of the terms of a public agreement or
            transaction so serious as to affect the integrity      F
            of an agency program, such as-
     (1)    A willful failure to perform in accordance with the
            terms of one or more public agreements or
            transactions;
                                                                   G
     (2)    A history of failure to perform or o( unsatisfactory
            performance of one or more public agreements or
            transactions; or

      (3)   A willful violation of a statutory or regulatory
                                                                   H
    448         SUPREME COURT REPORTS               [2013] 14 S.C.R.


A                 provision or requirement applicable to a public
                  agreement or transaction;

          (c)     xxxx

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

       21. The guidelines also stipulate the factors that may
  influence the debarring official's decision which include the
C 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
D                 wrongdoing.

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

          (d)     Whether contractor has been excluded or
E                 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
F                 this part.

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

          (f)     Whether the . contractor has accepted
G                 responsibility for the wrongdoing and recognized
                  the seriousness of the misconduct.

          (g)     Whether the contractor has paid or agreed to pay
                  all criminal, civil and administrative liabilities for
H                 the improper activity, including any investigative
    KULJA INDUSTRIES LIMITED v. CHIEF GEN.                  449
   MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
             or administrative costs incurred by the                A
             government, and have made or agreed to make
             full restitution.

      ((h)   Whether contractor has cooperated fully with the
             government agencies during the investigation and       8
             any court or administrative action.

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

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

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

      (/)    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."   E

      22. As regards the period for which the order of debarment
will remain effective, the guidelines state that the same would
depend upon the seriousness of the case leading to such
debarment.
                                                                    F
     23. Similarly in England, Wales and Northern Ireland, there
are statutory provisions that make operators ineligible on
several grounds including fraud, fraudulent trading or conspiracy
to defraud, bribery etc.
                                                                    G
     24. Suffice it to say that 'debarment' is recognised and
often used as an effective method for disciplining deviant
suppliers/contractors who may have committed acts of
omission and commission or frauds including
misrepresentations, falsification of records and other breaches     H
    450       SUPREME COURT REPORTS               [2013] 14 S.C.R.


A   of the regulations under which such contracts were allotted.
    What is notable is that the 'debarment' is never permanent and
    the period of debarment would invariably depend upon the
    nature of the offence committed by the erring contractor.

     • :25. In the case at hand according to the respondent-BSNL,
8
  the aippellant had fraudulently withdrawn a huge amount of
  money which was not due to it in collusion and conspiracy with
  the officials of the respondent-corporation. Even so permanent
  debarment from future contracts for all times to come may
  sound too harsh and heavy a punishment to be considered
C reasonable especially when (a) the appellant is supplying bulk
  of its manufactured products to the respondent-BSNL and (b}
  The excess amount received by it has already been paid back.

          ~~6. The next question then is whether this Court ought to
D itself determine the time period for which the appellant should
  be blacklisted or remit the matter back to the authority to do
  so having regard to the attendant facts and circumstances. A
  remand back to the competent authority has appealed to us to
  be a more appropriate option than an order by which we may
E ourselves determine the period for which the appellant would
  remain blacklisted. We say so for two precise reasons. Firstly,
  because blacklisting is in the nature of penalty the quantum
  whemof is a matter that rests primarily with the authority
  competent to impose the same. In the realm of service
F jurisprudence this Court has no doubt cut short the agony of a
  delinquent employee in exceptional circumstances to prevent
  delay and further litigation by modifying the quantum of
  punishment but such considerations do not apply to a company
  engaged in a lucrative business like supply of optical fibre/
G HOPE pipes to BSNL. Secondly, because while determining
  the pmiod for which the blacklisting should be effective the
  respondent-Corporation may for the sake of objectivity and
  transparency formulate broad guidelines to be followed in such
  cases. Different periods of debarment depending upon the
H gravity of the offences, violations and breaches may be
     KULJA INDUSTRIES LIMITED v. CHIEF GEN.                    451
    MANAGER W.T. PROJ. BSNL [T.S. THAKUR, J.]
  prescribed by such guidelines. While, it may not be possible        A
  to exhaustively enumerate all types of offences and acts of
  misdemeanour, or violations of contractual obligations by a
· contractor, the respondent-Corporation may do so as far as
  possible to reduce if not totally eliminate arbitrariness in the
  exercise of the power vested in it and inspire confidence in the    8
  fairness of the order which the competent authority may pass
  against a defaulting contractor.

      27. In the result, we allow this appeal, set aside the order
 passed by the High Court and allow writ petition No.2289 of
 2011 filed by the appellant but only to the extent that while the    C
 order blacklisting the appellant shall stand affirmed, the period
 for which such order remains operative shall be determined
 afresh by the competent authority on the basis of guidelines
 which the Corporation may formulate for that purpose. The
 needful shall be done by the Corporation and/or the competent        D
 authority expeditiously but not later than six months from today.
 The parties are left to bear their own costs.

 Kalpana K. Tripathy                                Appeal allowed.