Full Text
HIGH COURT OF DELHI
Date of Decision: 14.11.2024
AUROBINDO REALTY AND INFRASTRUCTURE PRIVATE LIMITED KMC CONSTRUCTIONS
LIMITED CONSORTIUM .....Petitioner
Through: Mr. Mukul Rohatgi, Mr. Rajiv Nayar & Mr. Sudhir Nandrajog, Sr.
Advocates
Through: Mr. Santosh Kumar, SC
JUDGMENT
1. The Petitioner has filed this Petition seeking to quash letter dated 10.05.2024 which was issued by Respondent/NHAI debarring the Petitioner from participating in any tender issued by the Respondent/NHAI for a period of 2 years. The Petition also impugns a communication dated 25.04.2024 issued by the Respondent/NHAI wherein a contract which was awarded to the Petitioner by the Respondent/NHAI, was withdrawn by the Respondent/NHAI.
2. By way of the present Application, the Petitioner is seeking grant of interim relief of stay of the letter dated 10.05.2024 [hereinafter referred to as “Debarment Letter”] debarring the Petitioner either individually or jointly from participating in any tender issued by the Respondent/NHAI in a consortium with any other entity or in any capacity or in any manner whatsoever.
3. The Application also seeks a stay on the operation of the letter dated 25.04.2024 [hereinafter referred to as “LoA withdrawal letter”] wherein the Letter of Award dated 31.03.2023 [hereinafter referred to as “LoA”] has been withdrawn by the Respondent/NHAI.
4. Learned Counsel for the Respondent/NHAI opposed the grant of interim relief and stated that he would make his submissions without filing a formal reply. Both parties thereafter sought time to file additional documents, which were filed by them.
5. Accordingly, at the request of the parties, the application for interim relief was heard on different dates by this Court.
6. At the outset, learned Senior Counsel for the Petitioner, on instructions from the Petitioner, in its Rejoinder arguments, has submitted that so far as concerns the prayer for stay of the operation of the LoA withdrawal letter, the same is not being pressed before this Court. The statement of the Petitioner is taken on record.
7. In view of this concession, this order examines only the grant for interim relief against the Debarment Letter and proceedings emanating therefrom.
8. Briefly, it is the case of the Respondent/NHAI that the Petitioner has concealed information about the filing of charge-sheet in the Delhi Excise case against M/s Trident Chemphar Ltd. [hereinafter referred to as “Trident”] which is the sister/associate concern of the Petitioner, thereby, violating terms and conditions of the notice inviting bid and the Request for Proposal dated 27.07.2022 [hereinafter referred to as “RFP”] and accordingly, the LoA has been withdrawn and a penalty of debarment and blacklisting has been imposed on the Petitioner.
9. Learned Senior Counsel, Mr. Mukul Rohatgi, Mr. Neeraj Kishan Kaul, Mr. Rajiv Nayar and Mr. Sudhir Nandrajog have been heard on behalf of the Petitioner. Several contentions raised by the learned Senior Counsel for the Petitioner which include those enumerated below. 9.[1] The Petitioner has contended that the LoA withdrawal letter and Debarment Letter would lead to a complete civil death of the Petitioner as ever after the lapse of 2 year period of debarment, the Petitioner would not be able to participate in tenders issued by the Respondent/NHAI. The debarment is although for 2 years, would be stigmatic forever. The learned Senior Counsel has placed reliance on recent judgment of the Supreme Court in Blue Dreamz Advertising Pvt. Ltd & Anr. v. Kolkata Municipal Corporation & Ors.1, wherein Doctrine of Proportionality, has been explained including on jurisprudence developed in USA. It is contested, that debarment should be utilized, if it is the “only” way to stop the harm or potential harm caused by the offending entity. The present circumstances, do not justify the blacklisting. 2024 SCC OnLine SC 1896 9.[2] It is contended that more than 170 contracts worth thousands of crores which the Petitioner intended to perform are impacted in view of the debarment. The Petitioner’s employs more than 800 persons and its entire business, will come to a stand still if the Debarment Letter is permitted to continue. 9.[3] The Debarment Letter was not preceded with by a Show Cause notice as is required in law. The Show Cause notice dated 22.12.2023 [hereinafter referred to as “SCN”] was only with respect to withdrawal of the LoA and that a separate notice is essential for initiating debarment proceedings which was not provided for. The SCN shows that the Respondent/NHAI only has listed a barrage of possible penalties that could be imposed upon the Petitioner, without setting out which penalty would be invoked by the Respondent/NHAI. Relying on the judgement of the Supreme Court in UMC Technologies (P) Ltd. v. Food Corpn. of India[2], it is contended that a valid particularised and unambiguous Show Cause Notice is requisite in view of the severe consequences of blacklisting. In the present case, the SCN does not even set out specifically that they propose to debar the Petitioner and only lists out a series of possible punishments that the Respondent/NHAI intends to take. 9.[4] Trident is an associate concern of the Petitioner, however, it is not part of the consortium which formed part of the contract which was awarded pursuant to RFP and the LoA [hereinafter referred to as “Contract”]. Relying on an office memorandum issued by the Union of India dated 02.11.2021 under which the Ministry of Finance has issued guidelines on debarment of firms from bidding, it is stated that the guidelines provide that debarment should be undertaken if a bidder has been convicted of an offence. In addition, it is contended that Appendix IA Clause 12 of the RFP’s “Letter Comprising The Technical Bid” is referred to submit that this clause clearly states that in matters relating to security and integrity of the country, bidder needs to state that they or member of the consortium/associates have not been charge-sheeted by any agency or convicted by a Court of Law. The relevant extract is set out below:
9.[5] The SCN, issued by the Respondent/NHAI is based on the fact that there is a charge-sheet filed against one of the associate concerns of the Petitioner in relations to the Delhi Excise case which has no connection with national security or integrity of the country. The charge-sheet of this nature and that too pertaining to an associate concern which is not part of the consortium would not, in any manner, impact the Contract awarded to the Petitioner, hence was not disclosed under a wrongful understanding of the requirement. 9.[6] Relying on the Doctrine of Proportionality, it is contended that the degree of fairness and proportionality needs to be maintained by the Respondent/NHAI as an arm of the state. The Respondent/NHAI had already imposed the penalty of withdrawal of LoA for the non-disclosure and thus, the Contract which was awarded to the Petitioner stood terminated. However, in addition and by a subsequent communication, it also imposed the penalty of the debarment of two years from the date of Debarment Letter up to 09.05.2026. Relying on the judgment in the case of Isolators and Isolators v. Madhya Pradesh Madhya Kshetra Vidyut Vitran Company Limted & Anr.3, it is submitted that once the penalty is already imposed by the issue of the LoA withdrawal letter, the debarment was severe and excessive and not commensurate to the “so-called” wrong doing of the Petitioner. 9.[7] Lastly, it is contended that the SCN of this nature is required to be unambiguous, fair in proportion to the penalty that is seeks to impose. The learned Senior Counsel relies on Gorkha Security Services v. Govt. (NCT of Delhi) & Ors.4, to submit that a valid Show Cause Notice needs to be served in instances involving debarment and blacklisting, and it needs to comply with principles of natural justice, as debarment and blacklisting, are stigmatic and would lead to civil death of the affected entity.
10. Learned Standing Counsel, Mr. Santosh Kumar who appears for the Respondent/NHAI has in response contended that for the grant of an interim stay, the Petitioner is required to show that prima facie the debarment is illegal, which it has failed to do. The Debarment Letter was issued in May, 2024, however, the present Petition has been filed in October 2024. As such Petitioner’s action is not indicative of any urgency to entitle it to interim relief, and a considerable amount of time has already elapsed. The debarment is itself for 2 years, of which 5 months have already elapsed. 10.[1] Learned Standing Counsel for the Respondent/NHAI further submits that the LoA withdrawal letter and the Debarment Letter has been issued only in view of the concealment. Reliance is placed on Clause 4 of the RFP which sets out fraud and corrupt practices, to state that Clause 4.3(b) defines “fraudulent practice” as misrepresentation or omission or suppression of facts. In view of the fact that the Petitioner has concealed the factum of the Trident being charge-sheeted, the Respondent/NHAI was well within its right to take the requisite action. 10.[2] It is only after repeated communications, was it disclosed by the Petitioner that Trident (an associate concern of the Petitioner) has been charge-sheeted in the Delhi Excise case which has been filed by the Central Bureau of Investigation (CBI) under the Prevention of Money Laundering Act, 2002 [hereinafter referred to as “PMLA”] against several persons. 10.[3] Relying on paragraph 286 of the judgment in the case of Vijay Mandal Choudhary & Ors v. Union of India Ors.5, it is contended that all matters under the provisions of PMLA affect the security and integrity of the country and that such offences are serious offences and have to be dealt with accordingly. 10.[4] The learned Standing Counsel for the Respondent/NHAI submits that the RFP sought such a disclosure from a bidder if there was any pending investigation against their Directors in their associate companies. However, it was only after a series of inter-se communications that on 17.10.2023, the Petitioner disclosed that there was an investigation pending against the Trident. The Respondent/NHAI submits that the information was being sought from July, 2023 onwards but was only disclosed in October, 2023. 10.[5] The learned Standing Counsel for the Respondent/NHAI submits that this Court has in various judgments has held that brief and concise reasoning would suffice for a Debarment Letter, and does not need to be elaborate or detailed. Reliance is placed on the judgment of a Coordinate Bench of this Court in Diwan Chand Goyal v. National Capital Region Transport Corporation & Anr.[6] to submit that there is no necessity in law, to give separate notices for cancellation of contract and for debarment, and the SCN cannot be assailed on this ground. The learned Standing Counsel refers to the Debarment Letter, and states that it is well reasoned and gives detailed explanation for the penalty sought to be imposed on the Petitioner. 10.[6] It is further submitted that the contention of the Petitioner that the Respondent/NHAI exhausted the SCN after using it, for the LoA withdrawal letter, is also without merit. The withdrawal of LoA has been exercised under Clause 4.[1] of the RFP and debarment has been exercised under Clause 4.[2] of the RFP. Clause 4.[2] of the RFP provided that any action under this Clause is without prejudice any prior action taken by it. As such Respondent/NHAI’s right of action under the SCN had not been exhausted by withdrawing of the LoA. 10.[7] The learned Counsel for the Respondent/NHAI argues that the SCN in the present case is a valid notice, and the Petitioner’s contention that the SCN did not mention that a period debarment of 2 years will be imposed, MANU/DE/1662/2020 statement that there will be 2 years of debarment in the Show Cause Notice, would have been indicative of pre-determination of punishment on the part of the Respondent/NHAI. Hence was not done. 10.[8] Lastly, the learned counsel for the Respondent/NHAI seeks to distinguish the judgments in the cases of Isolators case and Aneuser Busch Inbev India Limited v. Commr & Ors.[7] case to submit that these cases are not applicable in the facts of the present case.
11. In Rejoinder, the learned Senior Counsel, Mr. Mukul Rohatgi, for the Petitioner reiterates that the action taken by the Respondent/NHAI is wholly disproportionate. If the purpose of the SCN was to discipline the Petitioner, this would already been done by withdrawal of LoA and terminating the Contract causing huge losses to the Petitioner. The debarment will cause corporate death of the Petitioner as every tender has a pre-requisite declaration regarding any prior blacklisting, which would automatically lead to their disqualification and will drive the Petitioner to closure. This is the irreparable harm and injury that will be caused to the Petitioner if interim relief is not granted. 11.[1] The learned Senior Counsel for the Petitioner submits that the SCN states a host of punishment that can be imposed upon the Petitioner without providing for which and why, the said SCN was issued. The SCN is vague, as is evident from its wording, which includes “including but not limited to”. Additionally, since the Respondent/NHAI had already imposed the 2019 SCC OnLine Del 12144 penalty of withdrawal of LoA, it cannot have taken another action under the same SCN. 11.[2] On the issue of delay, the learned Senior Counsel for the Petitioner submits that this would be relevant if the delay would prejudice the Respondent/NHAI. However, the only prejudice that is being caused is to the Petitioner against whom the penalties have been being imposed by the Respondent/NHAI. In any event, it is contended that prior to approaching this Court, the Petitioner had spent several months communicating with the Respondent/NHAI wherein the Petitioner made all attempts to resolve the matter amicably including meeting with the senior officials of the Respondent/NHAI and that even up to August, 2024, the Petitioner was addressing letters to the Respondent/NHAI and was in talks with the Respondent/NHAI attempting an amicable resolution of disputes. 11.[3] The learned Senior Counsel for the Petitioner submits that the prima facie case and the balance of convenience is also in favour of the Petitioner as the SCN does not fulfil the criteria as set out by the Courts and Respondent/NHAI imposed the harshest penalty available to it.
12. It is not longer res integra that every action taken by the state or an instrumentality of the state should be fair and legitimate and should not be suggestive or give an impression of bias or be a case of colourable exercise of power.
13. The Petitioner was awarded a Contract for construction of four lane access-controlled highway by the Respondent/NHAI. To better appreciate the contentions raised by the parties, it is necessary to undertake a cursory examination of the RFP/bid document. Clause 7 of Appendix IA of the RFP at (Annexure I) required a declaration by the member of the consortium in the following manner: “7(a) I/We further certify that no investigation by a regulatory authority is pending either against us/any member of Joint Venture or our sister concern or against our CEO or any of our directors/managers/employees. (b) I/ We further certify that no investigation by any investigating agency in India or outside is pending either against us/any member of Joint Venture or our sister concern or against our CEO or any of our directors/managers/employees. 13.[1] Clause 2.1.18 of Clause 2 of the RFP which provides for general terms of bidding and instructions for bidders sets out that for the purposes of the RFP the definition of “Associate” as, in relation to bidder/consortium member, means a person who controls or is under common control of such bidder/consortium member and control is defined as ownership or voting rights of more than 50% of the share of the company in the following manner: “2.1.18 In computing the Technical Capacity and Net Worth of the Bidder/Consortium Members under Clauses 2.2.2, 2.2.[4] and 3.4, the Technical Capacity and Net Worth of their respective Associates would also be eligible hereunder. For purposes of this RFP, Associate means, in relation to the Bidder/Consortium Member, a person who controls, is controlled by, or is under the common control with such Bidder/ Consortium Member (the “Associate”). As used in this definition, the expression “control” means, with respect to a person which is a company or corporation. the ownership, directly or indirectly, of more than 50% (fifty per cent) of the voting shares of such person. and with respect to a person which is not a company or corporation, the power to direct the management and policies of such person by operation of law. lt is clarified that a certificate from a qualified external auditor who audits the book of accounts of the Bidder or the Consortium Member shall be provided to demonstrate that a person is an Associate of the Bidder or the Consortium as the case may be.” [Emphasis supplied] 13.[2] Section 4, Clause 4.[1] of Volume 1, instruction to bidders of the RFP sets out the clauses for fraud and corrupt practices. It states that the bidder and their officers, employees, agents and advisors shall observe the highest standards of ethics during the bidding process and subsequent to award of the LoA. It further set out that if a bidder engages in a corrupt, fraudulent, coercive or undesirable practice, the bid security would be forfeited as damages by the Respondent/NHAI. 13.[3] Clause 4.[2] provides that if a bidder is found to have indulged in a corrupt or fraudulent practice, it shall not be eligible to participate in any tender or RFP issued for a period of two years from the date it is discovered. Fraudulent practice is defined in sub-clause (b) of Clause 4.[3] to mean a misrepresentation or omission of facts or suppression by disclosure of incomplete facts. 13.[4] The relevant extract of these Clauses is reproduced below: “ SECTION-4
4. FRAUD AND CORRUPT PRACTICES 4.[1] The Bidders and their respective officers, employees, agents and advisers shall observe the highest standard of ethics during the Bidding Process and subsequent to the issue of the LOA and during the subsistence of the Agreement. Notwithstanding anything to the contrary contained herein, or in the LOA or the Agreement, the Authority may reject a Bid, withdraw the LOA, or terminate the Agreement, as the case may be, without being liable in any manner whatsoever to the Bidder, if it determines that the Bidder, directly or indirectly or through an agent, engaged in corrupt practice, fraudulent practice, coercive practice, undesirable practice or restrictive practice in the Bidding Process. In such an event, the Authority shall be entitled to forfeit and appropriate the Bid Security or Performance Security, as the case may be as Damages, without prejudice to any other right or remedy that may be available to the Authority under the Bidding Documents and/ or the Agreement, or otherwise. 4.[2] Without prejudice to the rights of the Authority under Clause 4.[1] hereinabove and the rights and remedies which the Authority may have under the LOA or the Agreement, or otherwise if a Bidder or Contractor. as the case may be, is found by the Authority to have directly or indirectly or through an agent, engaged or indulged in any corrupt practice, fraudulent practice, coercive practice, undesirable practice or restrictive practice during the Bidding Process, or after the issue of the LOA or the execution of the Agreement, such Bidder, at the sole and absolute discretion of the Authority, shall not be eligible to participate in any tender or RFP issued by the Authority during a period of 2 (two) years from the date such Bidder, or Contractor, as the case may be, is found by the Authority to have directly or indirectly or through an agent, engaged or indulged in any corrupt practice, fraudulent practice, coercive practice, undesirable practice or restrictive practices, as the case may be. 4.[3] For the purposes of this Section 4, the following terms shall have the meaning hereinafter respectively assigned to them: (a) “corrupt practice” means (i) the offering, giving, receiving or soliciting, directly or in directly, of anything or value to influence the actions of any person connected with the Bidding Process (for avoidance of doubt offering of employment to or employing or engaging in any manner whatsoever, directly or indirectly, any official of the Authority who is or has been associated in any manner, directly or indirectly, with the Bidding Process or the LOA or has dealt with matters concerning the Agreement or arising therefrom, before or after the\execution thereof, at any time prior to the expiry of one year from the date such official resigns or retires from or otherwise ceases to be in the service of the Authority, shall be deemed to constitute influencing the actions of a person connected with the Bidding Process); or (ii) save and except as permitted under the Clause 2.2.[1] (d) of this RFP, engaging in any manner whatsoever, whether during the Bidding Process or after the issue of the LOA or after the execution of the Agreement, as the case may be, any person in respect of any matter relating to the Project or the LOA or the Contract Agreement, who at any time has been or is a legal, financial or technical adviser of the Authority in relation to any matter concerning the Project; (b) "fraudulent practice" means a misrepresentation or omission of facts or suppression of facts or disclosure of incomplete facts;…”
14. It is the case of the Respondent/NHAI that the factum of investigation against Trident who is admittedly an associate concern of the Petitioner, was not disclosed by the Petitioner in the document submitted by it for award of the LoA. The Respondent/NHAI has contended that this non-disclosure would amount to a fraudulent practice as is defined in Clause 4.3(b) of the RFP and thus make the Petitioner liable for the penalty imposed on them which includes rejection of the bid by withdrawing the LoA and their debarment for the period of two years. 14.[1] The Petitioner, on the other hand, has contended that since Trident was not part of the consortium and no reliance was being placed on its net worth for the purposes of this bid, the interpretation of the Petitioner was that information about Trident, was not required to be disclosed in the RFP. It is further being contended that, however, when specific information was sought by the Respondent/NHAI, it was disclosed, thus there was no concealment.
15. The RFP/bid document Volume 1 contains various instructions to the bidder which are the terms and conditions with regard to the bidding process of the RFP. Clause 2.1.18 (which is extracted to in Paragraph 13.[1] above) forms part of the general instructions to bidders with respect to preparation and submission of bids while Section 4 is in essence, a warning to maintain high standards and not to indulge in fraudulent, corrupt, undesirable or restrictive practices in the bidding process. Clause 4.[3] of Section 4 states that the definition of fraudulent practice is for the purposes of this Section alone. Thus, the suppression which is stated to have been indulged in by the Petitioner in order to come within the purview of “fraudulent practice” would be applicable in a scenario where a bidder either directly or indirectly engages in a fraudulent practice in the bidding process.
16. Clause 4.[1] provides that if such a determination is reached by the Respondent/NHAI, the Respondent/NHAI will be entitled to forfeit and appropriate the bid security or performance security as damages without prejudice to other rights.
17. Although, the Petitioner has raised several grounds of challenge in the present Petition, it’s principle grievance is the fact that the Petitioner was already penalised by the Respondent/NHAI by the withdrawal of the Contract and LoA. However, in addition to these actions, they were also debarred from participating in any tender issued by the Respondent/NHAI for two years.
18. The significance and severity of the effects of blacklisting has been highlighted by various judgments of the Supreme Court. The Supreme Court in Kulja Industries Ltd. v. Western Telecom Project BSNL & Ors.[8] was dealing with a case where the appellant in that case had fraudulently withdrawn a huge amount of money which was not due to it, in conspiracy with the officials of the respondent company. It was held that the blacklisting/debarment is a penalty exercised for deviant contractors who have committed acts of fraud and that the time period applicable to such blacklisting must be commensurate with the gravity of the offence and the violations made. It was further held that while determining the period for blacklisting, the gravity of the offence must also be looked into. The relevant extract is below: “28. A remand back to the competent authority has appealed to us to be a more appropriate option than an order by which we may ourselves determine the period for which the appellant would remain blacklisted. We say so for two precise reasons:
28.1. Firstly, because blacklisting is in the nature of penalty the quantum whereof is a matter that rests primarily with the authority competent to impose the same. In the realm of service 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/HDPE pipes to BSNL.
28.2. 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 in such cases. Different periods of 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 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 fairness of the order which the competent authority may pass against a defaulting contractor...”
19. The Petitioner contends that the SCN sets out the fact that there was misrepresentation by the bidder in not disclosing the PMLA investigation against Trident and refers to multiple penalties which form part of Clause 4.[1] and 4.[2] of the RFP, without any specificity as to which penalty it intends to impose. These include rejection of bid, withdrawal of LoA, termination of the agreement and forfeiture of appropriate bid security or performance security as damages. 19.[1] In UMC Technologies case, the Supreme Court while relying on Gorkha Security case, held that in view of the severity of the effects of blacklisting, strict observance of principles of natural justice need to be followed. A show cause notice to fulfil the requirements of natural justice has to state the: (i) material/grounds which necessitate the action; and (ii) particular penalty/action which is proposed to be taken. 19.[2] The relevant extract of the UMC Technologies case is below: 20…
22. The High Court has simply stated [Gorkha Security Services v. State (NCT of Delhi), 2013 SCC OnLine Del 4289] that the purpose of show-cause notice is primarily to enable the noticee to meet the grounds on which the action is proposed against him. No doubt, the High Court is justified to this extent. However, it is equally important to mention as to what would be the consequence if the noticee does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show-cause notice should meet the following two requirements viz:
(i) The material/grounds to be stated which according to the department necessitates an action;
(ii) Particular penalty/action which is proposed to be taken. It is this second requirement which the High Court has failed to omit. We may hasten to add that even if it is not specifically mentioned in the show-cause notice but it can clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement.”
21. Thus, from the above discussion, a clear legal position emerges that for a show-cause notice to constitute the valid basis of a blacklisting order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the issuer of the notice to blacklist the noticee. Such a clear notice is essential for ensuring that the person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting.”
20. It is apposite to extract the relevant portion of SCN which is below: "In view of the above facts and circumstances, the Authority by way of the present Show Cause Notice seeks a detailed written response from the Selected Bidder to show cause as to why suitable actions, including but not limited to, the withdrawal of the LOA, forfeiture of the bid security, debarment of the Selected Bidder, imposition of damages, etc., should not be taken against the Selected Bidder in terms of the RFP, MoRTH Policy Circular No. NH-35014/2/2020-H-Part (2) dated 18.08.2022 (copy enclosed) and applicable laws…" 20.[1] Although the SCN does set out grounds for its issue, it does not give the penalty that it seeks to impose. The words used in the SCN are "withdrawal of LoA, forfeiture of the bid security, debarment, imposition of damages etc." meaning that the Respondent/NHAI could take all these actions. The SCN does not clearly set out which of these penalties that it seeks to impose - it merely lists out possibilities.
21. This Court finds merit in the contention that given the severity of the punishment - a particularised SCN was requisite. The Supreme Court in the Isolators case while considering a challenge to blacklisting and debarment notice found that since the show cause notice did not specifically set out the bar of penalty or the time period of such debarment, it could not be sustained. It was held that the action of imposing a penalty of debarment without specifically putting the Petitioner to notice about the proposed penalty cannot be approved. It was further held that reserving rights to take steps cannot suffice as a show cause notice. The relevant extract reads follows: “38. As regards the question of penalty, we find force and substance in the contentions urged on behalf of the appellant that such an imposition cannot be approved for two major factors:
38.1. The first and foremost being that in the show-cause notice dated 26-11-2019, the appellant was put to notice only as regards the proposition of debarment and in the said notice, nothing was indicated about the proposed imposition of penalty. Though in the cancellation orders dated 19-11-2019 and 21-11-2019, the respondents purportedly reserved their right to take appropriate steps, those orders cannot be read as show-cause notice specifically for the purpose of imposition of penalty. The submissions on behalf of the respondents in this regard that the said orders dated 19-11-2019 and 21-11-2019 have attained finality do not take their case any further. Finality attaching to the action of cancellation cannot be read as a due notice for imposition of penalty even if the respondents chose to employ the expression “cancelled with imposition of penalty” in those orders. Looking to the terms of contract, quantification of the amount of penalty (if at all the penalty is considered leviable) could not have been carried out without affording adequate opportunity of response to the appellant. That being the position, the action of the respondents in imposing the penalty without even putting the appellant to notice as regards this proposed action cannot be approved.
38.2. Secondly, the authority concerned has proceeded to impose the maximum of penalty to the tune of 10% of the deficit supply without specifying as to why the maximum of penalty was sought to be imposed. In this regard, the relevant factors as indicated by the appellant could not have been ignored altogether. Unfortunately, the High Court has totally omitted to consider this aspect of the grievance of the appellant.” 21.[1] We find force in the contention of the Petitioner that the SCN set out a series of punishments that could be awarded to the Petitioner. Paragraphs 6 and 7 of the SCN sets out that since the Petitioner has not disclosed the fact of the PMLA investigation against Trident, action will be taken against him which includes; (i) withdrawal of LoA; (ii) forfeiture of the bid security; (iii) debarment of the bidder; and (iv) imposition of damages, etc. Subsequently, the Respondent/NHAI imposed the penalty of withdrawal of LoA on 25.04.2024. Thereafter, on 10.05.2024, another communication was issued to the Petitioner debarring the Petitioner from participating in future tenders. Both communications are premised on the same set of contentions of nondisclosure/concealment. There is no specific reason set out for why a period of “2 years” was chosen as the period to blacklist the Petitioner. Thus, there is merit in the contention of the Petitioner that the severest penalty was imposed without a particularised show cause notice on the harsh penalty of debarment.
22. The Supreme Court in Blue Dreamz case has while relying on comprehensive guidelines for debarment including as prescribed in USA, held that the blacklisting as a penalty should not be resorted to if the explanation offered by a person raises a bona fide dispute especially in the case of an ordinary breach of contract. It was held that blacklisting prevents a person from entering into a contract for gain with government. In addition, it was held that guidelines for debarment exist to protect public interest against dishonest and illegal conduct of contractors. The relevant extract is set out below:
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 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.” 22.[1] The Petitioner has raised a bona fide dispute with respect to the action taken by the Respondent/NHAI in relation to Trident. This aspect will require examination. 22.[2] At this stage, however, the Respondent/NHAI has not been able to show as to how the non-disclosure has caused them any prejudice since Trident was neither part of the consortium, nor was contractually connected with the performance of the Contract. Undisputedly, the Contract stood terminated by the Respondent/NHAI, by the LoA withdrawal letter. 22.[3] In addition, although, the Respondent/NHAI reserved its right to claim damages on account of the concealment, this Court has not been shown that this right has been exercised by the Respondent/NHAI prior to today. Since the Respondent/NHAI has also reserved its rights to impose damages and claim damages from the Petitioner which may arise from this non-disclosure/concealment, it will thus also be required to show as to how this non-disclosure has led to harm or injury to them. The relevant extract of LoA withdrawal letter is set out below: “…8. In view of the above, it is hereby conveyed to M/s Aurobindo Realty & Infrastructure Private Limited in Joint Venture with M/s KMC Constructions Limited that the action of the Bidder clearly demonstrates material omissions and misrepresentations, thus warranting action stipulated under the relevant provisions of RFP, applicable laws and circulars of MoRTH. Accordingly, the Competent Authority of NHAI has decided to withdraw the Letter of Award dated 31.03.2023 under Clause 4.[1] of the RFP. The instant letter is being issued without prejudice to Authority's right to claim damages and/ or to realize any dues, losses and damages and/or to exercise any other right or remedy on account of Bidder's action of misrepresentation and fraud and failure to disclose material facts in compliance with the provisions of the RFP, as discussed hereinabove, which may be available now or in future under the RFP or under the applicable laws or otherwise, as the case may be..."
23. In the prima facie view of this Court, once an action has already been taken by the Respondent/NHAI against the Petitioner pursuant to the SCN based on the non-disclosure by the Petitioner of Trident's being the subject matter of a pending investigation by withdrawing the LoA, any further action, and that too of the drastic nature as that of backlisting the Petitioner, would require to be justifiable for its invocation as a second penalty, which the Respondent/NHAI has not been able to show, at present.
24. The Court is required to examine whether the Petitioner has made out a case for grant of interim relief fulfilling the trifecta of prima facie case, irreparable harm and injury and balance of convenience. It is settled law that blacklisting is in the nature of civil death for an entity and has grave consequences. It is thus required to be judged on the basis of the irregularities conducted by the person blacklisted and by applying the principles of proportionality.
25. The Petitioner has contended that it is a well reputed and established firm and has a good track record of undertaking and completing Government contracts. It employs over 800 people and the order of blacklisting would lead to a complete “civil death” of the Petitioner. The balance of convenience is in favour of the Petitioner and since irreparable harm and injury will be caused to the Petitioner and its over 800 employees if the Debarment Letter is not interdicted at this stage.
26. Undoubtedly, the PMLA is a special legislation to deal with the subject of money laundering activities and its related offences and stringent measures need to be taken to ensure compliance with the said Act. However, the gravity of the offence committed would have to be examined. The Petitioner has contended that no investigation is pending qua Trident in the Delhi Excise case and the charge sheet had already been filed by the Enforcement Directorate on 10.03.2023, which was prior to the submission of the bid by Petitioner for the Contract. It has further been explained that the Delhi Excise case is in relation to a new Excise Policy which was formulated pursuant to an Executive action taken by the Delhi Government in 2021-2022. It has not been shown as to how the contract between the parties would be affected by the outcome of the decision in the Delhi Excise case either.
27. The delay in approaching this Court has been explained by the Petitioner as prior to filing this Petition, attempts were made by the Petitioner to amicably resolve the disputes. This aspect has not been denied.
28. When a Petitioner approaches the Court, alleging violation of its rights, the Court is required to examine whether it is necessary to pass an interim order on the basis of prima facie findings to ensure that the matter does not become either infructuous or fait accompli, before its final hearing.
29. In view of the settled position of law as discussed above, this Court prima facie finds the Debarment Letter to be not consistent with the principles of proportionality. In these circumstances, till the next date of hearing, there shall be a stay on the Debarment Letter No. NHAI/11011/PC/BM/UPPADA BEACH/2022 dated 10.05.2024.
30. The Application is disposed of in the aforegoing terms.
31. The matter requires further examination.
32. Issue Notice.
33. Learned Counsel for the Respondent/NHAI accepts notice and seeks time to file Counter-Affidavit. Counter-Affidavit be filed within six weeks. 33.[1] Rejoinder, if any, be filed within two weeks thereafter.
34. List on 05.02.2025.