Supreme Court of India
THE BLUE DREAMZ ADVERTISING PVT. LTD. & ANR.versusKOLKATA MUNICIPAL CORPORATION & ORS.
- Citation
- 2024 INSC 589
- Decided
- 7 August 2024
- Disposal
- Appeal(s) allowed
Holding
Blacklisting/debarment is not justified where there is a bona fide contractual dispute; the debarment order is set aside as a disproportionate penalty.
Summary
The Kolkata Municipal Corporation awarded a tender to Blue Dreamz Advertising for advertising on street hoardings, but disputes arose over reciprocal obligations such as work orders, bank guarantees, and the number of hoardings installed. The Corporation issued a show‑cause notice and subsequently debarred the company for five years, alleging non‑payment and breach of contract. The company challenged the debarment, invoking an arbitration clause, and the arbitrator later awarded a set‑off amount, indicating a bona fide contractual dispute. The Single Judge of the Calcutta High Court set aside the debarment on the ground of a genuine dispute, but the Division Bench reversed that decision. The Supreme Court held that blacklisting is a drastic remedy and cannot be imposed where a bona fide dispute exists, deeming the penalty disproportionate, and restored the Single Judge’s order. Consequently, the debarment order was set aside and the appeal was allowed.
Issues considered
- Whether the Corporation’s order dated 02.03.2016 debaring the appellant for five years is valid and justified under law
- What relief, if any, the appellant is entitled to in view of the debarment
Subjects
TenderTender conditionsBreach of contractBlacklistingDebarmentBid documentBona fide contractual disputeAdvertisement on street hoardingsFulfilment of reciprocal obligationsDisproportionate penalty
Judgment
[2024] 8 S.C.R. 189 : 2024 INSC 589
The Blue Dreamz Advertising Pvt. Ltd. & Anr.
v.
Kolkata Municipal Corporation & Ors.
(Civil Appeal No. 8516 of 2024)
07 August 2024
[B.R. Gavai, Sanjay Karol and K.V. Viswanathan,* JJ.]
Issue for Consideration
Where the case is of an ordinary breach of contract and the
explanation offered by the person concerned raises a bona fide
dispute, whether blacklisting/debarment can resorted to as a penalty.
Headnotes†
Tender – Tender conditions – Breach of contract – Blacklisting/
debarment – Respondent no.1-Corporation invited bids for
allotment of contract for display of advertisement on street
hoardings (including V shaped), Bus passenger shelter
and kiosks – Appellant was the successful bidder – There
were issues between the appellant and the Corporation with
regard to the fulfilment of the reciprocal obligations in the bid
document – Following which appellant was blacklisted – By
an order of 02.03.2016, the Corporation debarred the appellant
from participating in any tender for a period of five years –
The Single Judge of the High Court set aside the order of
debarment on the ground that there was a bona fide civil
dispute between the parties – However, the Division Bench
of the High Court set aside the judgment of the Single Judge
of the High Court – Justified or not:
Held: The appellant, after the award of the tender, has admittedly
paid an amount of Rs. 3,71,96,265/-, though, according to the
Corporation, the outstanding amount as on the date of the
debarment was Rs. 14,63,24,727/- – However, as would be
clear from the facts, right from the inception there have been
issues between the appellant and the Corporation with regard to
the fulfilment of the reciprocal obligations in the bid document –
There was exchange of correspondence between the parties with
each side blaming the other for not performing the reciprocal
obligations – While the appellant had a case with regard to the
* Author
190 [2024] 8 S.C.R.
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non-issuance of work orders; non-receipt of formal format of
bank guarantee; refusal of No Objection Certificate for obtaining
connection from the Calcutta Electric Supply Corporation Ltd.;
existence of only 200 out of 250 allotted street hoardings and
so on demonstrating breach of obligations by the Corporation –
The Corporation had a case that Bank Guarantee was not the
mode of payment and as such there was no reason to insist on
Bank Guarantee; that in the joint inspection the appellant’s men
failed to cover all the areas and thereafter when appellant was
asked to submit a list of allotted location, the appellant failed to
furnish the same and further there was huge default on the part
of the appellant – All these reasons fall far short of rendering
the conduct of the appellant in the present case, so abhorrent
as to justify the invocation of the drastic remedy of blacklisting/
debarment – The appellant very clearly has been subjected to
a disproportionate penalty – The exchange of correspondence
resulted in invocation of the arbitration and it is undisputed that
by an award of 26.04.2024, the appellant has been awarded after
due set off Rs. 2,23,14,565/- with 8% interest per annum under
the very same dispute – It does signify is that there was a bona
fide contractual dispute between the parties – The Single Judge
was right in setting aside the order of debarment on the ground
that there was a bona fide civil dispute between the parties –
Therefore, the judgment of the Division Bench of the High Court
is set aside and the judgment of the Single Judge of the High
Court is restored. [Paras 28, 30, 31, 42]
Case Law Cited
Erusian Equipment & Chemicals Ltd. v. State of West Bengal &
Anr. [1975] 2 SCR 674 : (1975) 1 SCC 70; B.S.N. Joshi & Sons
Ltd. v. Nair Coal Services Ltd. & Ors. [2006] Supp. 8 SCR 11 :
(2006) 11 SCC 548; Kulja Industries Ltd. v. Chief General Manager
Western Telecom Project BSNL & Ors. [2013] 14 SCR 430 :
(2014) 14 SCC 731; Patel Engineering Limited v. Union of India
and Another (2012) 11 SCC 257 – relied on.
List of Keywords
Tender; Tender conditions; Breach of contract; Blacklisting;
Debarment; Bid document; Bona fide contractual dispute;
Advertisement on street hoardings; Fulfilment of the reciprocal
obligations; Breach of obligations; Disproportionate penalty.
[2024] 8 S.C.R. 191
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No.8516 of 2024
From the Judgment and Order dated 21.06.2017 of the High Court
at Calcutta in MAT No.277 of 2017.
Appearances for Parties
P. S. Datta, Sr. Adv., Ms. Anwesha Saha, Salim Ansari, Advs. for
the Appellants.
L. C. Agrawala, Pankaj Agarwal, Sujoy Mondal, Advs. for the
Respondents.
Judgment / Order of the Supreme Court
Judgment
K.V. Viswanathan, J.
1. Leave granted.
2. The present Appeal is filed against the judgment and order dated
21.06.2017 passed by the Division Bench of the High Court at Calcutta
in M.A.T. No. 277 of 2017. By the said judgment, the High Court
allowed the Appeal of the respondents and set aside the judgment
of the learned Single Judge. Consequently, the Writ Petition filed by
the appellant stood dismissed.
Brief Facts:
3. The respondent no. 1-Kolkata Municipal Corporation (hereinafter
referred to as the ‘Corporation’) invited bids for allotment of contract
for display of advertisement on Street Hoardings (including V Shaped),
Bus Passenger shelter and Kiosks within its jurisdiction. Under the
tender conditions, the contract was to be awarded for a period of
one year, subject to extension of two more years. By an award of
28.05.2014, the appellant who had participated in the tender and
quoted the highest rate at Rs. 3,70,00,000/- each for cluster no.
I, II, III, VI and VIII was notified as a successful bidder and was
requested to confirm the acceptance. On 29.05.2014, the appellant
conveyed its acceptance.
4. Thereafter, a series of correspondence ensued with the appellant
on matters like, alleged non-receipt of any formal work order (on
192 [2024] 8 S.C.R.
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11.06.2014); non-receipt of any format of the Bank Guarantee (on
13.06.2014); request for a ‘No Objection Certificate’ for obtaining
new connection from Calcutta Electric Supply Corporation Ltd. (on
26.06.2014); problems with the execution like, non-matching of
the unit code numbers with the hoardings or the non-matching of
locations; existence of same unit code for different locations, rendering
the commencement of work incapable (letter of 26.06.2014) and
existence of lesser hoardings out of the 250 street hoardings (letter
of 07.07.2014).
5. The Corporation, by its letter dated 08.07.2014, demanded payment
for the month of June. Thereafter, the appellant wrote a letter of
19.07.2014 stating that till date they have identified 200 numbers
of street hoardings out of the 250 allotted and sought for a joint
inspection to identify the rest of them. At this stage, the Corporation
issued a letter of 10.09.2014 stating that there was no reason why
the appellant was insisting for the Bank Guarantee Format since
Bank Guarantee was not the mode of payment. According to the
Corporation, the bills for 5 clusters of Rs. 4,62,67,500/- (for only
July to September, 2014) had not been paid in spite of service of
the bill on 08.07.2014. The Corporation also mentioned that in the
joint inspection the appellant’s men failed to cover all the areas and
thereafter, the appellant was asked to submit a list of allotted locations
which, according to the Corporation, the appellant had not furnished.
The appellant was warned that in case the payment as demanded
was not paid, steps as per the tender clauses would be taken.
6. When the matter stood thus, the appellant wrote a letter on 14.11.2014
setting out all the earlier correspondence and the grievances raised by
them and ultimately praying that they be granted diminution, reduction
and/or adjustment of the license fee. They prayed that their demand
for 174 hoardings be confirmed so that they could make the payment.
The Corporation served a memo dated 06.12.2014 setting out that
already a notice of 20.11.2014 was served demanding payment of
8,16,15,870/- up to December, 2014 but the same has not been
cleared. The appellant was asked to appear on 12.12.2014 to show
cause why the allotment of hoarding shall not be cancelled. On
28.02.2015, a Show Cause Notice was issued asking the appellant to
show cause why the appellant’s allotment be not terminated as dues
to the tune of Rs. 10,28,52,918/- plus interest had not been cleared.
[2024] 8 S.C.R. 193
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
7. In this scenario, on 29.07.2015, a notice was published in English
Daily “The Times of India” Kolkata stating that the appellant had
been blacklisted from participating in any advertisement in the city
of Kolkata. However, on a challenge made in Writ Petition No. 960
of 2015, on 04.08.2015, a submission was made to the Court by the
learned senior counsel for the Corporation that the decision of the
blacklisting of appellant was to be withdrawn and that the Corporation
would proceed with the matter in accordance with law after providing
opportunity of hearing. The Writ Petition was disposed of.
8. The appellant had earlier filed Writ Petition No. 261 of 2015
challenging the Show Cause Notice of 28.02.2015. The learned
Single Judge dismissed the Writ Petition on 04.03.2015. An appeal
bearing APOT No. 89 of 2015 was preferred along with GA No. 782
of 2015. The Appeal and G.A. were disposed of by an order of 24th
August 2015 recording the submissions of the Learned Additional
Advocate General appearing for the Corporation and disposing of
the matter in the following terms:-
“Due to typographical errors in the show cause notice
dated 28th February, 2015, the learned Additional Advocate
General very fairly submitted he is not pressing this show
cause notice but the appropriate proceedings shall be
taken before the Arbitrator.”
9. Thereafter, the Corporation issued a Show Cause Notice dated
27.08.2015 to the appellant, stating that as on the said date Rs.
16,84,34,431/- along with interest is due and payable towards
license fee/advertisement tax. The Show Cause Notice also alleged
that the appellant had failed to execute the agreement for street
hoardings, which was issued on 29.11.2014 and failed to submit the
bank guarantee which was issued on 27.09.2014 and it also alleged
that the appellant had illegally shifted several hoardings without
the consent of the authority. The show cause notice asserted that
in spite of repeated requests and/or reminders, the appellant had
failed to make payment and refused and/or neglected to perform the
obligations as per the terms and conditions of the tender. The Show
Cause Notice further clearly alleged as under:
“In view of the aforesaid breach of the terms and conditions
of the tender, you are requested to file a show cause as
to why befitting action to blacklist you from participating in
194 [2024] 8 S.C.R.
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any tender process should not be taken all (sic.) you make
the outstanding payment and comply with the terms and
conditions of the tender. You are required to submit your
reply within 15 days from the date of Receipt of this letter,
failing which the authority will take appropriate decision in
accordance with law.”
10. By its reply of 15.09.2015, the appellant responded to the Show
Cause Notice. The appellant mentioned therein that the tender
document did not empower the Corporation to determine the alleged
breach on the part of the company arising out of the contract; that in
view of the submission made by the Corporation before the Division
Bench, it is only the arbitrator in terms of Clause 18 who can decide
the dispute mentioned in the Show Cause Notice of 27.08.2015;
that Corporation is a party to the proposed arbitration proceeding
and it cannot usurp the power of the arbitrator; that the decision to
blacklist the appellant without recourse to arbitration proceeding is
illegal and that any decision to blacklist before the decision of the
arbitrator would be prejudging the alleged guilt without deciding the
issue. The appellant prayed that the Show Cause Notice be not given
effect to till the disposal of the arbitration proceeding.
11. It further appears that by notice dated 05.10.2015, the appellant
invoked clause 18 of the tender document and sought reference to
the Joint Municipal Commissioner as arbitrator.
Debarment Order:
12. By an order of 02.03.2016, the Corporation debarred the appellant
from participating in any tender for a period of five years or till the
date of exoneration of the company from the allegation of negligent
performance/action and also of nonpayment of huge amount or till
the date of payment of entire dues with interest under the direction
of any authority/forum/court, whichever is later. The order, after
recording the history of the dispute and after noticing the fact that
at the hearing given, the company took the same plea as stated by
them in their reply, observed as under:-
“… …. The company had alleged that it could find only 174
hoarding out of 250 hoardings but the company in their letter
dated 14th November, 2014 stated, inter alia, that they were
able to find 200 street hoarding including 26-V-shaped.
[2024] 8 S.C.R. 195
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
The company cannot take such plea particularly when the
display sites/hoardings were specified in the lists under
annexure-I, Il & III to the tender notice. The description of
works under clause-2 of the tender notice clearly stated that
the street hoarding in the annexure would be allotted in “As
in where is basis”. The company after having understood
the scope and effect of the terms and condition of the
notice the offers which were accepted by the authorities.
The bills for 5 clusters amounting to Rs.4,58,97,360/- had
already been served. The company was informed of its
failure to pay the sum of Rs.4,58,97,360/- for the period
from July 2014 to September 2014. The company paid
part amount for 55 nos. of hoarding as against the said
demand for the said quarter.
The company failed to mention the unit code on the allotted
street hoarding and the company did not adhere to the
instruction as made in this respect by writing letters on
repeated occasions.
Clause-2.1 as incorporated in the tender notice is redundant
in respect of the hoardings already in-existence since such
hoardings remain fitted with the provision for supply of
electricity. In fact, no objection certificate is not required
from the KMC in respect of the existing hoardings. All
that is necessary is for confirmation of the change of the
name of the user/agency. It is on record that the company
continued to display the advertisement in the hoardings
without requiring the no objection certificate from the
KMC until 3rd March 2015 when a letter was issued in this
respect. There is no document to show that the company
applied to the CESC for electric connection and the CESC
required no objection certificate from the KMC. It is on
record that the contract period commenced from 1st June
2014 and hence there was no cogent reason to write the
letter for No Objection Certificate after about 8 months. No
application to the CESC in the name of the petitioners for
the purpose illuminated street hoarding was submitted to
the concerned authorities. The company used the supply of
Electricity without requiring to inform the KMC AND EACH
AND EVERY HOARDING was found illuminated during
196 [2024] 8 S.C.R.
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inspection failed to obtain the interim order as prayed for
preferred the appeal being APOT No. 290 of 2015 and
an application being G.A. No. 2374 of 2015 was filed in
connection with the said appeal. The Hon’ble appeal court
while dismissing the appeal and also the application by an
order dated 3rd August 2015 was pleased to observe that
there was no urgency in the matter in view of pendency of
the writ petition. It was also observed that if the appellants
were aggrieved in any manner with respect to the contract
it was necessary for them to invoke arbitration clause.
The company earlier filed the writ petition being W.P.
No.261 of 2015 relating to the notice to show cause dated
28th February 2015. The company was asked to show
cause why the allotment should not be terminated for not
clearing the dues amounting to Rs. 10,28,52,918/- as then
calculated plus interest to take defense upon certain facts
in the written argument. I am not fully convinced and/or
satisfied with the stand and/or explanation for several
reasons and/or ground as stated hereinbefore. It appears
to me that the company did not have the financial capacity
to have the display of advertisement rights in 5 clusters
and as such the company started creating problems on
one plea to another since after obtaining the allotment
of Sites. The company in one hand stopped the KMC to
allot the said site to others and on the other hand itself
stopped the due payment for 5 clusters. The KMC has
thus suffered in both counts. Moreover the company has
made an attempt to set up a bad example to others having
interest to enjoy the advertisement rights.
That being the position the KMC has no alternative but
to blacklist the company for gross negligent action. The
company is therefore debarred from participating in any
tender to have the award of contract for a period of 5
years or till the date of exoneration of the company from
the allegation of negligent, performance/action and also
of nonpayment of huge amount or till the date of payment
of entire dues with interest under the direction of any
authority/forum/court whichever is later.”
[2024] 8 S.C.R. 197
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
13. In the meantime, it appears that in August, 2016, the appellant
also filed a claim before the arbitrator claiming an award for Rs.
19,81,60,400/-. At the hearing before us, it was submitted that the
arbitrator Justice (Retd.) Narayan Chandra Sil, who ultimately heard
the matter, passed an award on 26.04.2024 awarding the claimant
a sum of Rs. 2,23,14,565/- after excluding the set off amount of Rs.
78,03,435/- along with interest of 8% per annum from the date of
the award till realization. This statement is reiterated in the written
submissions. We were also given a copy of the award. The respondent
has not disputed the said fact.
Proceedings in the High Court:
14. The appellant also filed a Writ Petition, namely, Writ Petition No.
6616(W) of 2016 challenging the order of 02.03.2016. The learned
Single Judge of the High Court while setting aside the order of
02.03.2016 held as under:
“It is well settled by the above authorities that blacklisting
is a civil consequence. The rules of natural justice have
to be scrupulously followed. This denotes that proper
reasons have to be given. The reasons, should have
suggested that public interest would be affected if the writ
petitioner was continued to be awarded contracts by the
respondent Corporation. Or it was to be established that
the writ petitioner was a dishonest business organisation,
or irresponsible or wholly lacking in business integrity. The
government or a government agency like the respondent-
Corporation could not blacklist the writ petitioner without
assigning these reasons or reasons akin thereto. There is
a civil dispute between the parties. The matter has gone
to arbitration. At best, the writ petitioner can be accused of
taking the contract, not fully paying for it and not performing
it. The respondent Corporation has a monetary claim against
the writ petitioner. It does not appear that the writ petitioner
has made payment of any significant part of the contract
price. It is astonishing that the respondent Corporation did
not terminate the contract within the contract period and
award hoardings to another party when the writ petitioner
made a breach of the payment condition to pay the quarterly
licence fee in advance. It waited till after the expiry of
198 [2024] 8 S.C.R.
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the contract period on 30th June, 2015. Thereafter, they
proceeded to show cause the writ petitioner. This shows
considerable fault on the part of the respondent Corporation.
It also goes to indicate that expressly or impliedly the
respondent Corporation had accepted the alleged breach
of contract made by the petitioner.
Moreover, the defence of the writ petitioner in their written
notes of argument is that 174 hoardings which were
awarded to them were “non-lucrative”. As the respondent
Corporation did not issue a no objection certificate, CESC
Limited could not give permission to light the hoardings.
The writ petitioner could not put them to any use. If this
is the defence raised by the writ petitioner it could not be
cast aside as one totally devoid of any merit. Therefore,
following the ratio laid down by Mr. Justice Sinha in the
case of B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd
and another reported in (2006) 11 SCC 548 blacklisting
proceeding should not have proceeded with because the
writ petitioner in my opinion raised a bona fide dispute.
Furthermore, blacklisting ought not to have been made
until and unless this dispute was resolved.
For all the above reasons, the impugned order dated 2nd
March, 2016 is set aside. Only the issue of blacklisting is
decided by this order. Any observation regarding any other
dispute between the parties is to be taken as tentative.”
15. The matter was carried in Appeal by the Corporation and by the
impugned order, the High Court has allowed the same by holding
that since the appellant was given a hearing and since the order
of 02.03.2016 cannot be held to be unreasonable or unfair or
disproportionate, there existed sufficient reasons for debarring
the appellant. So holding, the Appeal was allowed. The appellant
aggrieved is before us in Appeal. This Court while issuing notice in
the matter by its order of 27.04.2018 stayed the operation of the
impugned judgment.
Contentions:
16. We have heard Mr. P.S. Datta, learned senior counsel for the appellant
and Mr. Sujoy Mondal, learned counsel for the respondent. We have
[2024] 8 S.C.R. 199
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
also perused the written submissions filed by the appellant. The
respondent has not filed any written submissions.
17. The learned senior counsel for the appellant contends that the
Corporation could at best have imposed only a ‘penalty’ for making
late payments or in the case of default of payments under clause 9
and there could not have been blacklisting; that blacklisting can be
only made when there was deviation of clauses 2.8, 11 & 14 and
that the Show Cause Notice precisely setting out why the blacklisting
was to be imposed need to have been given; that the grounds of
blacklisting are not the one stated in clauses 2.8, 11 & 14; that the
order of blacklisting was passed during the pendency of the arbitration
proceedings; that the issues relating to blacklisting were akin to the
facts in issue before the arbitration; that the Corporation has failed
to prove gross misconduct or irregularities or fraud involving of any
element of public interest; that the learned Single Judge was right
in setting aside the order of blacklisting; that the Corporation is
guilty of having not acted fairly and reasonably by not facilitating
the appellant to perform his contractual right; that the Corporation
despite the repeated undertaking before the High Court for taking
resort to arbitration has deliberately issued the order of blacklisting
and that any and every act of alleged breach of contract would not
ensue blacklisting.
18. In support of their submission, the appellant relied on B.S.N. Joshi
& Sons Ltd. vs Nair Coal Services Ltd. & Ors. (2006) 11 SCC
548. The appellant also assailed the judgment of the Division Bench
by contending that the Division Bench failed to consider that there
was no element of violation of public interest involved in the conduct
of the appellant and in fact the Corporation was guilty of having
not acted fairly and reasonably and that the Division Bench has
completely overlooked this aspect. The appellant further contended
that the order of blacklisting was disproportionate and contrary to
the judgment in Kulja Industries Ltd. vs Chief General Manager
Western Telecom Project BSNL & Ors. (2014) 14 SCC 731.
19. The learned counsel for the Corporation defended the order of
blacklisting as well as the judgment of the Division Bench and prayed
that there was no case for interference by this Court.
20. We have considered the submissions of the learned counsels and
perused the record.
200 [2024] 8 S.C.R.
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Questions for consideration:
21. The following questions arise for consideration:
a. Whether in the facts and circumstances of the case, the order of
the Corporation dated 02.03.2016, debarring the appellant for a
period of five years is valid and justified in the eye of the law?
b. If so, what reliefs is the appellant entitled to?
Reasons and conclusions:
22. Blacklisting has always been viewed by this Court as a drastic remedy
and the orders passed have been subjected to rigorous scrutiny. In
Erusian Equipment & Chemicals Ltd. vs State of West Bengal
& Anr. (1975) 1 SCC 70, this Court observed that
“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….”
23. In Mr. B.S.N. Joshi (supra), this Court held that
“41. … When a contractor is blacklisted by a department
he is debarred from obtaining a contract, but in terms of
the notice inviting tender when a tenderer is declared to
be a defaulter, he may not get any contract at all. It may
have to wind up its business. The same would, thus, have
a disastrous effect on him. Whether a person defaults in
making payment or not would depend upon the context
in which the allegations are made as also the relevant
statute operating in the field. When a demand is made, if
the person concerned raises a bona fidedispute in regard
to the claim, so long as the dispute is not resolved, he
may not be declared to be defaulter.”
(Emphasis supplied)
24. This Court in Kulja Industries Ltd. (supra) after setting out the legal
position governing blacklisting/debarment in USA and UK held that:
“25. Suffice it to say that “debarment” is recognised
and often used as an effective method for disciplining
[2024] 8 S.C.R. 201
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
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. 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.
26. In the case at hand according to the respondent 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 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.”
25. What is significant is that while setting out the guidelines prescribed in
USA, the Court noticed that comprehensive guidelines for debarment
were issued there 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. The illustrative cases set out also demonstrate
that debarment as a remedy is to be invoked in cases where there is
harm or potential harm for public interest particularly in cases where
the person’s conduct has demonstrated that debarment as a penalty
alone will protect public interest and deter the person from repeating
his actions which have a tendency to put public interest in jeopardy.
In fact, it is common knowledge that in notice inviting tenders, any
person blacklisted is rendered ineligible. Hence, blacklisting will not
only debar the person concerned from dealing with the concerned
employer, but because of the disqualification, their dealings with
other entities also is proscribed. Even in the terms and conditions
of tender in the present case, one of the conditions of eligibility is
that the agency should not be blacklisted from anywhere.
26. In other words, where the case is of an ordinary breach of contract
and the explanation offered by the person concerned raises a
202 [2024] 8 S.C.R.
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bona fide dispute, blacklisting/debarment as a penalty ought not
to be resorted to. Debarring a person albeit for a certain number
of years tantamounts to civil death inasmuch as the said person is
commercially ostracized resulting in serious consequences for the
person and those who are employed by him.
27. Too readily invoking the debarment for ordinary cases of breach of
contract where there is a bona fide dispute, is not permissible. Each
case, no doubt, would turn on the facts and circumstances thereto.
28. Examining the facts of this case from that perspective, we find that
the appellant, after the award of the tender, has admittedly paid an
amount of Rs. 3,71,96,265/-, though, according to the Corporation,
the outstanding amount as on the date of the debarment was Rs.
14,63,24,727/-. However, as would be clear from the facts discussed
hereinabove, right from the inception there have been issues between
the appellant and the Corporation with regard to the fulfilment of
the reciprocal obligations in the bid document. There has been
exchange of correspondence between the parties with each side
blaming the other for not performing the reciprocal obligations.
While the appellant had a case with regard to the non-issuance
of work orders; non-receipt of formal format of bank guarantee;
refusal of No Objection Certificate for obtaining connection from
the Calcutta Electric Supply Corporation Ltd.; existence of only
200 out of 250 allotted street hoardings and so on demonstrating
breach of obligations by the Corporation, the Corporation had a
case that Bank Guarantee was not the mode of payment and as
such there was no reason to insist on Bank Guarantee; that in the
joint inspection the appellant’s men failed to cover all the areas
and thereafter when appellant was asked to submit a list of allotted
location, the appellant failed to furnish the same and further there
was huge default on the part of the appellant.
29. Even in the order dated 02.03.2016 by which the appellant was
debarred for a period of five years, the reason given is that the
tender notice had clearly stated that the street hoardings in the
annexures would be allotted on ‘as is where is’ basis; that the
company having understood the scope and effect of the terms and
conditions of the notice accepted the award; that, ‘No Objection
Certificate’, is not required in respect of the existing hoardings; that
there was no document to show that the company had applied to
[2024] 8 S.C.R. 203
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
the Calcutta Electric Supply Corporation Ltd. for connection and
that it appeared to the Corporation that the company did not have
the financial capacity to pay and as such the company was creating
problems on one pretext or the other since obtaining the allotment
of sites. The order also stated that the appellant had set up a bad
example to others having interest to enjoy the advertisement rights.
30. All these reasons fall far short of rendering the conduct of the appellant
in the present case, so abhorrent as to justify the invocation of the
drastic remedy of blacklisting/debarment. The appellant very clearly
has been subjected to a disproportionate penalty. The Corporation
has lifted a sledgehammer to crack a nut. We disapprove of the said
course of action on the facts of this case.
31. The exchange of correspondence resulted in invocation of the
arbitration and today it is undisputed that by an award of 26.04.2024,
the appellant has been awarded after due set off Rs. 2,23,14,565/-
with 8% interest per annum under the very same dispute. We are
not here concerned with the correctness of the award. What it does
signify is that there was a bona fide contractual dispute between
the parties and we hold that the learned Single Judge was right in
setting aside the order of debarment on the ground that there was
a bona fide civil dispute between the parties.
32. What renders the matter a fortiori is that when APOT No. 89 of 2015
along with GA 782 of 2015 filed against the order of the learned
Single Judge dismissing Writ Petition No. 261 of 2015, the counsel
for the Corporation had submitted to the Court that the Show Cause
Notice was being withdrawn at that stage and appropriate proceeding
was to be taken before the arbitrator. In spite of the statement, the
Corporation did not invoke arbitration.
33. The appellant invoked arbitration and no doubt a counter claim was
filed by the Corporation before the arbitrator. Ultimately, the counter
claim was decreed for Rs. 78,03,435/- and the claim was decreed
for Rs. 3,01,18,000/- and after ordering set off, an award has been
passed for Rs. 2,23,14,565/-.
34. The issues framed by the arbitrator also indicate that the assertions
and counter assertions of the appellant and the Corporation were
clearly in the nature of a bona fide civil dispute only to demonstrate
that aspect, the issues are extracted herein below:
204 [2024] 8 S.C.R.
Digital Supreme Court Reports
“1. Is the arbitral proceeding barred by reasons of accord
and satisfaction?
2. Did the respondents fail to allot 250 street hoardings
in terms of tender document?
3. Did the respondents fail and neglect to provide clear
sites to the claimants by intervening and removing
illegal hoardings for obstructions at the allotted sites?
4. Did the respondents issue ‘no objection certificate’
to the claimants for getting new connections from
the CESCP?
5. Was there any mis-match of unit code and the location
hoardings?
6. Was it established and accepted in joint inspection
by the KMC that only 200 street hoardings out of
250 could be located?
7. Did the claimants fail to deposit the requisite amount
in advance under the contract for which the KMC,
the respondent, suffered substantial loss in revenue?
8. Was there any obligation of the respondents to identify
the location of the street hoardings as the agreement
was on ‘as is where is basis’?
9. Did the parties discharge their respective liabilities
under the contract and if so to what extent?
10. Is the claimant entitled to the claim amount as
claimed?
11. Are the respondents entitled to the amount of counter-
claim as claimed in their statement of counter-claim?
12. To what other relief or reliefs the parties are entitled?”
35. The Division Bench has, in our opinion, not appreciated the case in its
proper perspective. Merely saying that the blacklisting order carried
reasons is not good enough. Do the reasons justify the invocation
of the penalty of blacklisting and is the penalty proportionate, was
the real question.
[2024] 8 S.C.R. 205
The Blue Dreamz Advertising Pvt. Ltd. & Anr. v.
Kolkata Municipal Corporation & Ors.
36. The Division Bench has observed that blacklisting is 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. It also observed that between two private parties the right
to take any such decision is absolute and untrammeled by any
constraints whatsoever. The observations are too sweeping in their
ambit and wholly overlook the fact that the respondent-Corporation
is a statutory body vested with the duty to discharge public functions.
It is not a private party. Any decision to blacklist should be strictly
within the parameters of law and has to comport with the principle
of proportionality.
37. The Division Bench having noticed the fact that any decision to
blacklist will be open to scrutiny on the anvil of the doctrine of
proportionality has failed to apply the principle to the facts of the
case in the correct perspective. The Division Bench has also failed to
correctly appreciate the ratio of the decision in B.S.N. Joshi (supra).
38. There has been no enquiry by the Division Bench as to whether
the conduct of the appellant was part of the normal vicissitudes in
business and common place hazards in commerce or whether the
appellant had crossed the rubicon warranting a banishment order,
albeit for a temporary period in larger public interest.
39. One such case where this Court found the Lakshman Rekha to be
breached by the party blacklisted was Patel Engineering Limited vs.
Union of India and Another, (2012) 11 SCC 257. In that case, while
upholding the order of blacklisting, this Court recorded the following:
“33. From the impugned order it appears that the second
respondent came to the conclusion that: (1) the petitioner is
not reliable and trustworthy in the context of a commercial
transaction; (2) by virtue of the dereliction of the petitioner,
the second respondent suffered a huge financial loss; and
(3) the dereliction on the part of the petitioner warrants
exemplary action to “curb any practice of ‘pooling’ and
‘mala fide’ in future”.
34. We do not find any illegality or irrationality in the
conclusion reached by the second respondent that the
petitioner is not (commercially) reliable and trustworthy in
the light of its conduct in the context of the transaction in
question. We cannot find fault with the second respondent’s
206 [2024] 8 S.C.R.
Digital Supreme Court Reports
conclusion because the petitioner chose to go back on its
offer of paying a premium of Rs 190.53 crores per annum,
after realising that the next bidder quoted a much lower
amount. Whether the decision of the petitioner is bona fide
or mala fide, requires a further probe into the matter, but,
the explanation offered by the petitioner does not appear
to be a rational explanation.
36. …. The dereliction, such as the one indulged in by
the petitioner, if not handled firmly, is likely to result in
recurrence of such activity not only on the part of the
petitioner, but others also, who deal with public bodies, such
as the second respondent giving scope for unwholesome
practices…..”
40. Equally so in Kulja Industries (supra), the party blacklisted was
alleged to have fraudulently withdrawn a huge amount of money
which was not due to it in collusion and conspiracy with officials of
the respondent Corporation.
41. Patel Engineering (supra) and Kulja Industries (supra) bring
out the contrast between cases of that ilk and others, like the case
in question. It is this distinction the Division Bench has grossly
overlooked which, however, the learned Single Judge had rightly
brought to the fore.
42. For all the reasons set out hereinabove, we set aside the impugned
judgment of the Division Bench dated 21.06.2017 passed in M.A.T.
No. 277 of 2017 and restore the judgment of the learned Single
Judge. The result will be that the Writ Petition No. 6616(W) of 2016
filed by the appellant before the High Court at Calcutta would stand
allowed and the order of blacklisting dated 02.03.2016 would stand
set aside. The Appeal is, accordingly, allowed. No order as to costs.
Result of the case: Appeal allowed.
†
Headnotes prepared by: Ankit Gyan
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