Johnson and Johnson Pvt Ltd v. All India Institute of Medical Sciences New Delhi

8. We would further like to state that our Company had participated in the afore stated tenders through a process of competitive bidding, and upon due scrutiny and examination of our bids in line with the tender's technical and commercial requirements, the same were awarded to our Company by the Competent Authority after proper review and diligence.

9. With respect to tender 126/H/Suture Materials/2013-14 (126H tender"), we would like to state and submit that this tender was floated in 2014 for procurement of individual items like sutures and other consumables including only one of the consumable items (HP054) that was included in NCI tender. This tender was awarded in 2015, and was valid only for two years, i.e., till 2017. The 126H tender did not contain any equipment or other consumables as contained in the NCI Jhajjar tender. It is also important to note that the 126H tender did not contain any minimum quantity commitment in the tender. Post expiry of the initial two years, the 126H tender was extended from time to time. The 126H tender being a tender for individual items without any minimum quantity commitment cannot be compared with the NCI Tender, which was a composite tender with detailed quantities of equipment, consumables and accessories to be provided in the tender.

10. It is germane to mention here that the terms of sale and pricing and technical specifications for every tender is exclusive to that tender and is premised on certain commercial, technical and management decisions prevailing at the relevant time. The Competent Authority has referred to five (5) tenders in their Show Cause Notice, having dissimilarattributes and fulfilled between the years 2015 to 2021, hence no reasonable comparison can be made by the Competent Authority, whether in terms of price, terms of sale and/or other specifications after the successful grant and fulfillment of those tenders. xxx” (emphasis supplied)

7. The petitioner’s request for personal hearing was granted and the hearing was subsequently conducted on 20.04.2021 by a Committee constituted by the respondent. Pursuant to this hearing, the respondent, on 29.04.2021, passed the impugned order whereunder, the supply order dated 27.03.2021 was cancelled, the Earnest Money Deposit paid by the petitioner at the time of bid submission stood forfeited, and the petitioner was declared debarred from participating in any future tenders issued by the respondent for a period of two years from the date of passing of the impugned order. The impugned order, passed on 29.04.2021, reads as under: “i. The argument made by rep. of M/s Johnson & Johnson Pvt. Ltd. that all tenders are different and they can quote different rates in different tenders was not accepted by the Personal Hearing Committee as in the tender acceptance form, they have accepted all tender conditions under section-IX including fall clause undertaking at

┌─────────────────────────────────────────────────────────────────────────────────────────────┐
│                                             Total                                           │
│                                  Quantity                    CAMC                           │
│                                           Quantity                                          │
│ Sl.      Name of                   per             Warranty period                          │
│                        Consignee             per                                            │
│ No.     Equipment                 Deptt.            Period    after                         │
│                                           Schedule                                          │
│                                   (No.)                     warranty                        │
│                                             (No.)                                           │
│       Combined                                                                              │
│       Single                                                                                │
│       Generators                                                                            │
│       for Ultrasonic                                                                        │
│       Cutting and New                                                                       │
├─────────────────────────────────────────────────────────────────────────────────────────────┤
│ 1     Coagulation    Surgical       12         12           05 years   05 years             │
│       device with Block                                                                     │
│       advance                                                                               │
│       Radio-                                                                                │
│       Frequency                                                                             │
│       Energy                                                                                │
│ W.P.(C) 5989/2021                                   Page 21 of 46                           │
│                                                                             2021:DHC:2608   │
└─────────────────────────────────────────────────────────────────────────────────────────────┘

48.[1] of the TED which reads as under:

48. Corrupt or Fraudulent Practices 48.[1] It is required by all concerned namely the Bidder /Suppliers/ Purchaser/Consignee/End User etc. to observe the highest standard of ethics during the procurement and execution of such contracts. In pursuance of this policy, the Purchaser: - (a) defines, for the purposes of this provision, the terms set forth below as follows: (i) "corrupt practice" means the offering, giving, receiving or soliciting of anything of value to influence the action of a public official in the procurement process or in contract execution; and (ii) "fraudulent practice" means a misrepresentation of facts in order to influence a procurement process or the execution of a contract to the detriment of the Purchaser, and includes collusive practice among bidders (prior to or after Bid submission) designed to establish Bid prices at artificial non-competitive levels and to deprive the Purchaser of the benefits of free and open competition; (b) Will reject a proposal for award if it determines that the Bidder recommended for award has engaged in corrupt or fraudulent practices in competing for the contract in question;

(c) Will declare a firm ineligible, either indefinitely or for a stated period of time, to be awarded a contract by the purchaser if it at any time determines that the firm has engaged in corrupt or fraudulent practices in competing for, or in executing the contract.”

25. While the entire principle behind a provision like Clause 48 is to endorse the high standard of ethics that is expected to be shown by all bidders, the petitioner’s plea is that, being a penalty provision, the same needs to be strictly construed, keeping in view the plain language of the contract. It is, therefore, necessary to visit the facts of the present case, especially the terms and conditions of the TED, to ascertain whether the petitioner had violated any contractual obligations that invited the application of this penalty clause, at all.

26. What emerges is that, firstly, at the time of bid submission on 15.11.2019, the bidding process for the NCI was still at a nascent stage and was yet to culminate into a contract between that Hospital and the petitioner. Thus, the petitioner is right to contend that, when the contract with the NCI had not been executed when the bid was submitted on 15.11.2019, there was no question of furnishing details pertaining to it at that time. Secondly, it is undisputed that the petitioner had made a real and serious effort to bring the contracts executed with the AIIMS Emergency and CRHP, Ballabhgarh on record, by placing them for the consideration of the respondent at the time of price negotiations. Thirdly, the petitioner had already sent a price disclaimer letter to the respondent on 07.11.2019, stating that in the case of other Government Department/Institution or any other institution, it may have quoted lower prices for the equipment, than the prices it had quoted to the respondent, and that such decrease in prices was in accordance with the terms of sale and other conditions applicable during the pendency of such contract. Given these factors, it cannot be said that the conduct of the petitioner was not completely transparent or that it had failed to inform the respondent in advance about lower prices having been quoted in different contracts. Furthermore, the respondent has not seriously dispute the petitioner’s plea that, as per general practice, contractors supplying sophisticated medical technology, such as the petitioner, earn more money from the consumables that are sold. As a result, the price quotations made by the bidders are made by taking the quantity of consumables, forming part of the contract, to arrive at the optimum pricing arrangement for themselves and the customers. To put it plainly, in the case of orders seeking higher quantities of consumables, such as that of the NCI, the price of consumables would be decreased and, in cases such as the respondent’s where the number of consumables sought were less, the price of the consumables would see a relative increase. When this was already known to the respondent, I am of the view that it cannot be permitted to conduct a mere superficial comparison of the pricing of different tenders, without taking into consideration the different parameters contained therein, to force a contractually unspecified obligation upon the petitioner to reveal details of previous contracts at the time of conducting price negotiations. Finally, and most significantly, as already noted above, there is absolutely no provision in the TED which makes it mandatory for the shortlisted bidder to disclose previous contracts at the stage of price negotiations. Therefore, I am of the view that in the absence of any such contractual obligation, it would be unreasonable to stretch the applicability of a penalty clause, being Clause 48 of the TED, to penalize the petitioner and hold it guilty thereunder of ‘corrupt and fraudulent practice’.

27. At the same time, I cannot lose sight of the fact that the spirit behind a provision such as Clause 48 of the TED is to secure the highest ethical standard from the contractor during the procurement and execution process. This was, after all, not a run-of-the-mill contract and, instead, dealt with the supply of highly complex and nuanced medical equipment that would be put to use by medical professionals for the benefit of the public. Considering that the respondent enjoys the trust and goodwill of millions of citizens, hailing from rural and urban settings alike, when it comes to receiving quality healthcare, the immense responsibility owed by the respondent Hospital to its patients cannot be downplayed. It is in this background that one can truly appreciate the effect and importance of a provision such as Clause 48 of the TED and the disclosures it sought from the contractors it intended to partner with. Being one such contractor and partner, the petitioner was subject to the same standards and expectations, and had a duty to discharge these roles earnestly, and with the utmost care.

28. Even if the petitioner was under the impression that the contract with the NCI, and the one executed with the respondent were unique, different, and incomparable, the petitioner had a chance to confer with the respondent on this aspect and seek a clarification thereupon from the Price Negotiation Committee. In fact, I may note that the reply sent by the petitioner to the show cause notice on 15.04.2021 shows that the petitioner also bore the same impression in respect of the contracts executed with the AIIMS Emergency and CRHP, Ballabhgarh, and believed them to be incomparable with the contract executed with the respondent. Yet, this did not prevent the petitioner from furnishing these contracts for the perusal of the Price Negotiation Committee on 12.03.2021. Thus, even if there was no explicit contractual provision fastening an obligation upon the petitioner to make such a disclosure during price negotiations, the petitioner chose to exercise due caution in advance and reveal details of similar contracts to the respondent; this transparency, however, did not seem to be recreated in respect of the contract with the NCI. Ultimately, the equipment, being Combined Single Generator for Ultrasonic Cutting and Coagulation device with advance Radio-Frequency Energy, had been supplied to the NCI far more recently than the equipment supplied to the AIIMS Emergency, CRHP, Ballabhgarh or the Dr. B.R.A. Institute-Rotary Cancer Hospital, AIIMS, New Delhi on 13.12.2012, and does lend some credence to the respondent’s grievance that the petitioner could not pick and choose which contracts to disclose at the time of negotiations. The petitioner’s decision to be selective with the information it furnished to respondent at the time of negotiations does betray the cavalier manner in which the petitioner discharged its solemn duties as a contractor for the respondent. I am, therefore, inclined to agree with the respondent that the petitioner’s conduct was not entirely fair to begin with. It also lends credence to the respondent’s apprehension to partner up with the petitioner, in view of the complete loss in trust between them once the respondent came to know that the petitioner had withheld important information from it in respect of the equipment. Moreover, this erosion of trust and the respondent’s anxieties as to whether the petitioner, being a company of worldwide repute, had honoured its responsibility to act in their mutual interest and for the general public good at the time of executing the contract between them, are material considerations and cannot simply be brushed aside. While the absence of any contractual violation is manifest, the apprehensions of the respondent have to be balanced in view of the fact that the actions of the petitioner were not completely above board and, given the numerous and deliberate omissions that it partook in, rather unfair. Thus, while holding that Clause 48.1(a) of the TED is not applicable to the facts of the present case, I am not inclined to set aside the decision of the respondent to cancel the contract executed under the supply order dated 27.03.2021.

29. This brings me to the second question raised in this petition, whether the ‘Fall Clause’ contained in Clause 33 of the General Conditions of Contract contained in Section IV of the TED was applicable at all, in the light of the allegations existing against the petitioner. To truly understand this aspect, it may be apposite to extract hereinbelow the ‘Fall Clause’ of the TED:

30. The petitioner contended that the respondent has completely misinterpreted the terms of the ‘Fall Clause’ and, resultantly, erred in assessing whether the same could be invoked in the context of the petitioner’s case at all. The petitioner also contended that the ‘Fall Clause’ came into effect after the contract between the parties was executed under the Supply Order dated 27.03.2021, and was only a price safety mechanism that vested the respondent with a right to seek reduction in price quotation in case it found that the petitioner was supplying the same equipment to another party for lower prices. A careful examination of the provision in question shows that the petitioner was right to contend that the ‘Fall Clause’ provision neither gave the respondent a right to terminate the contract, nor to debar the petitioner from participating in future contracts. Rather, I find that all that the ‘Fall Clause’ provision enabled the respondent to do was to seek reduction of prices, which the respondent admittedly never sought. Thus, for the respondent to take shelter under Clause 33 of Section IV of the TED to defend its decision to terminate the contract and debar the petitioner, would tantamount to permitting the respondent to forcibly stretch the limited contours of the ‘Fall Clause’ provision to change its character from a remedial provision to a penalty clause. This simply cannot be permitted in view of the narrow purpose of the ‘Fall Clause’ and, for the aforesaid reasons, the impugned order insofar as it invokes the ‘Fall Clause’ provision of the TED to cancel the respondent’s contract with the petitioner, and then blacklist it, is set aside.

31. This brings me to the next question, whether the impugned order had been passed after duly considering the defense put forth by the petitioner. Administrative orders, such as the impugned order, require the Authority passing it to clearly set out the reasons as to why it arrived upon a decision to penalize an entity. This makes such administrative orders, and the manner in which they are written, of special interest to the affected party and the Courts that deal with their grievances. In Mekaster (supra), a Coordinate Bench of this Court made the following observations: “DUTY TO GIVE REASONS:

22. It is now well settled proposition of law, laid down by series of judgments, that even an administrative authority is required to support its decision by reasons. Lord Denning in Breen Amalgamated Engineering Union, (1971) 2 QB 175 (CA) observed that “giving of reasons is one of the fundamentals of good administration”. Fairness founded on reasons is the essence of guarantee epitomised in Article 14 of the Constitution. The requirement of giving reason is a shackle on acting arbitrarily and whimsically. It is for this reason that the rule requiring reasons to be given in support of an order is now accepted as a basic principle of natural justice.

23. In S.N. Mukherjee's case (supra) the Supreme Court pointed out that if reasons are recorded it would enable the Supreme Court or the High Courts to effectively exercise the appellate or the supervisory power. Such orders passed are subject to judicial review; albeit on the limited grounds on which such judicial review is available. These grounds include observance of principle of natural justice, namely, proper hearing and decision by an unbiased person, taking into consideration the relevant factors and conversely excluding all irrelevant factors in the decision making process etc. Therefore, in order to appreciate as to whether there was proper application of mind to the contention raised by the noticee and those who are duly considered, it is not necessary to give reason. It is for this reason that in S.N. Mukherjee's case(supra) the Court laid down some other considerations. In the background of the dicta laid down in the aforesaid judgment as well as other judgments and commentaries of celebrated authors on administrative law, following justifications can be enlisted in support of the proposition that there is a need to give reasons for administrative decisions:— A) It would guarantee consideration by the authority; B) It would introduce clarity in the decisions; C) It would minimise chances of arbitrariness in decision making in dicating that the authority has given due consideration to the points in controversy; D) A duty to give reasons entails a duty to rationalise the decision. Reasons, therefore, help to structure the exercise of discretion, and the necessity of explaining why a decision is reached; E) Furnishing reasons satisfies an important desire on the part of the individual to know why a decision was reached (Lawrence Baxter, Administrative Law (1991 p. 228); F) Basic fairness requires that those in authority over others should tell them why they are subject to some liability or have been refused some benefit (De Smith, Woolf and Jowell, Judicial Review of Administrative Actions (1995 p. 459); G) Rationale criticism of a decision may only be made when the reasons for it are known. This subjects the administration to public scrutiny and it also provides an important basis for appeal or review; H) If reasons are assigned, they can provide guidance to others on the administrator's likely future decisions, and so deter applications which would be unsuccessful. I) It may also protect the body from unjustified challenges, because those adversely affected are more likely to accept a decision if they know why it has been taken.

24. Thus, the most impelling consideration for insistence upon disclosure of reasons in support of an order or decision is that it ensures proper application of mind, reduces the possibility of casualness and minimises whim and caprice, and thereby serves to provide legal protection to persons against arbitrary official conduct (See Bhagat Raja v. Union of India, AIR 1967 SC 1606; Travancore Rayons v. Union of India, AIR 1971 SC 862 and C.B. Gautam v. Union of India, 1993 (1) SCC 78.

25. Another judicial rationale for requirement of reasons is that a person affected by an adverse order is entitled to know why the decision has gone against him or her. ‘The decision might be perfectly right, but the person against whom it was made was left with the real grievance that he was not told why the decision had been made’ (See Poyser and Mills’ Arbitration, [1964] 2 QB 467 at p. 467). The obligation to give reasons according to the decision of the Supreme Court in Siemens Engg. & Mfg. Co. of India Ltd. v. Union of India, AIR 1976 SC 1785 stems from the mandate of natural justice. The Court held that absence of reasons leads to denial of justice because “the rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law”. These threads were picked up and given a further boost in Organo Chemical Industries v. Union of India, AIR 1979 SC 1803. There, the Court emphasised that one of the requirements of natural justice was “spelling out reasons for the order made, in other words, a speaking order. The inscrutable face of the sphinx is ordinarily incongruous with a judicial or quasijudicial performance”..

26. The recording of such reasons is imperative not only when the administrative authority discharges quasi-judicial function but also it is a pure administrative function and the decision is visited by civil or evil consequences as far as affected party is concerned (See Ramesh B. Desai v. Union of India, AIR 1988 Delhi 288).So far as cases of blacklisting are concerned, this requirement will, all the more, be imperative having regard to the spirit of the judgments of the Supreme Court in the cases of M/s. Erusion Equipment(supra) and M/s. Star Enterprises(supra).

EXTENT OF REQUIREMENT TO GIVE REASONS:

27. Having said that it has now become an obligation to give reasons in support of an administrative order, we may hasten to add that what is needed is not a detailed or elaborate judgment, but a brief and pithy statement of reasons for the decision. The administrative authorities, after all, are not discharging the judicial function like that of a Court and, therefore, not required to write an order in the manner in which normally a judgment is written by a court of law. The reasons given by an authority need be no more than a concise statement of the way in which it arrives at the decision. Way back in the year 1996 the Supreme Court pointed out in M.P. Industries' case(supra) that “when we insisted upon reasons, we do not prescribe any particular form or scale of the reasons. The extent and the nature of the reasons depend upon each case.” What is essential is that the order must be a speaking order and must state the elements which had led to the decision and tell its own story and one is able to infer as to why the order was made. De Smith, Woolf and Jowell point out that the reasons must “meet the substance of the principle arguments that the tribunal was required to consider. In short, the reasons must show that the decision maker successfully came to grips with the main contention advanced by the parties, and must tell the parties in broad terms why they lost, or as the case may be one”. Reasons are links between materials on which certain conclusions are based and the actual conclusion drawn. They would disclose how the mind is applied to the subject matter; whether done relevantly or rationally. Therefore, it would be sufficient if reasons indicate application of mind is discernible and mental process leading from the dispute to its solution is found in the order.”

32. Against this legal position, I may note the relevant facts of this case. The reply sent by the petitioner on 15.04.2021, in response to the show cause notice, meticulously traversed various preliminary grounds in its defense setting out, inter alia, that the allegations in the notice arose from a comparison of incomparable contracts, the precise parameters which made these contracts incomparable, and that the respondent was erroneously scrutinizing individual prices quoted for each item, which was unusual in the case of composite tenders such as the one issued by AIIMS, SB. The respondent went on to state its seriatim-wise response to the queries contained in the show cause notice, setting out the various facets of each answer in great detail. However, when the impugned order came to be passed on 29.04.2021, the respondent concluded that: “i. The argument made by rep. of M/s Johnson & Johnson Pvt. Ltd. that all tenders are different and they can quote different rates in different tenders was not accepted by the Personal Hearing Committee as in the tender acceptance form, they have accepted all tender conditions under section-IX including fall clause undertaking at Serial No.33 of the TED. ii. More importantly, firm informed the rates of supply orders bearing no. 19/Emer. Med./M&E/PAC/2015-16 dated 30.12.2015 and supply order NO. 145/BHC/Stores/2015-16 dated 22.02.2016 which were finalized during Financial Year 2015-16 but did not disclose the recent rates offered in NCI, Jhajjar vide Supply Order No. HITES/PCD/NCI-AIIMS/31/2019- 20/7179 dated 15.02.2020 for ascertaining the reasonability of prices in Surgical Block Tender. This has been considered to be unethical, misleading and unjustified on the part of the firm. The firm has deliberately misrepresented the facts to influence a procurement process within the meaning of fraudulent practice under the clause 48 of TED. Accordingly, A11MS invoked TED 'Corrupt or Fraudulent Practices' clause at sr. No. 48 of GIB against the firm." (emphasis supplied)

33. Suffice it to say that the above extracted portion of the impugned order contains the only semblance of reasoning that was given by the respondent for imposing a penalty on the petitioner and it certainly leaves a lot to be desired. The first paragraph of the reasoning curtly disallows the detailed defense of the petitioner by making a brief reference to it and then stating that the same was rejected because the petitioner had accepted all terms and conditions under Section IX of the TED, including the ‘Fall Clause’ provision. I do not see any rational nexus between the petitioner accepting the terms and conditions of the TED and, on that ground, being forced out of its contract with respondent without being properly informed of the provision which it was allegedly guilty of violating. Insofar as the application of ‘Corrupt and Fraudulent Practice’ and the ‘Fall’ Clauses are concerned, this Court has already found hereinabove that the respondent did not have a concrete basis for invoking either of them in the facts of the present case. Apart from the alleged breach of Clauses 33 and 48, which has already been set aside, I am of the view that the impugned order fails to set out any valid ground for the respondent to proceed against the petitioner. Given that the petitioner had provided the respondent with a 13-page long reply to the show cause notice setting out its case, at the very least, the respondent, being an instrumentality of the State under Article 12 of the Constitution, ought to have provided the petitioner with sufficient reason as to why its detailed defense was being rejected. However, I find that the impugned order neither discusses any of the petitioner’s explanations, nor provides a cogent basis for rejecting them. For instance, if it were the case of the respondent that the number of consumables ordered could not be construed as a major parameter insofar as orders in respect of Combined Single Generators for Ultrasonic Cutting and Coagulation device with advance RF Energy technology were concerned, it was incumbent on the respondent to state as much in its impugned order and give reasons for taking such a stance. In Rama Pandey (supra), the Court had briefly dealt with the difficulties of cryptic administrative orders imposing harsh punishments, by making the following observations: “10. The impugned order dated 15th April, 2009 is cryptic and does not deal with the contentions and the pleas raised by the petitioner. It is the case of the petitioner that repeat episodes might have been submitted because of human error or mistake. The said contention has not been specifically taken into consideration and discussed. The impugned order quoted above only records the final conclusion without any discussion or reasons and assumedly rejects the pleas of the petitioner. The respondents were entitled to reject the contentions and the pleas of the petitioner but only after recording reasons for rejecting the same. The final decision or operative portion giving the final verdict is not a substitute for reasoning. A penal order should contain reason, albeit brief reasons may suffice. To this extent, therefore, the impugned order cannot be sustained and is arbitrary and contrary to law.”

34. The impugned order fails on all of these counts. It not only miserably fails to deal with the contentions and plea raised by the petitioner, it goes on to abruptly record the final conclusion of the respondent without providing any cogent reasoning therefore, in my view, the impugned order, lacking on this count, fails to qualify as a speaking order.

35. This brings me to the final grievance of the petitioner as regards the impugned order; could the respondent, in the facts of the present case, debar the petitioner from participating in any of the tenders issued by the respondent for a period of two years w.e.f. 29.04.2021 and was this punishment proportionate to the wrongs alleged to have been committed by the petitioner. Although, learned Solicitor General urged that the impugned order was not a ‘blacklisting order’ that sought to impact the petitioner’s commercial interests with other private or public medical institutions or hospitals, the fact remains that mere difference in nomenclature does not determine the effect or purpose of the impugned order. In fact, when the State made a similar argument recently in Daffodills Pharmaceuticals Ltd. &Anr. Vs. State of U.P. & Anr. 2019 SCC Online SC 1607, the Supreme Court quickly dismissed it by holding as follows: “14. Although, State of U.P. has argued that the impugned order requiring that no procurement ought to be made from Daffodills, is neither a blacklisting nor a debarring order, in our opinion, in fact and in reality, that order is nothing but an order or a directive, debarring and preventing the State of U.P. from local purchase of medicines from Daffodills for an indefinite duration. Unlike a “normal” blacklisting order which has a finite life span (of three or maximum five years), the indefinite directive (which appears to be co-terminus with the lifetime of the criminal case) is facially far more disproportionate than a blacklisting order. Even as on date, it is not clear whether formal charges have been framed against the accused i.e. Surender Chaudhary.”

36. The impugned order was passed in order to declare that the respondent was not interested in doing any further business with the petitioner for a period of two years. A quick glance at the bottom of the impugned order also shows that a copy thereof had been distributed to the Chiefs of various centres within the respondent Hospital such as the CN Centre; Dr. RPC; JPNATC; CDER; NDDTC; Dr. BRA IRCH; NCI, Jhajjar and CRHP, Ballabhgarh, as also the Senior Stores Officer/Stores Officer/Assistant Stores Officer of all Centres/Hospitals of the respondent. That being said, the respondent Hospital is an institute of national importance, operating in 22 cities spread across the entire country and its decision to desist from doing business with the petitioner is likely to cause the petitioner enormous financial losses. At the same time, the respondent, being a Government hospital, is an instrumentality of the State under Article 12 of the Constitution of India and, keeping in view the settled legal position set out by the Supreme Court in Kulja Industries limited Vs. Chief Gen. Manager (2014) 14 SCC 731, any decision made by the respondent in furtherance of its freedom to contract or not to contract with a private entity is subject to judicial review by a writ Court. Therefore, even if the relationship between the parties had been crystallised in the form of a contract, the decision of the respondent, a government hospital, to blacklist the petitioner for alleged violations of the contract ought to withstand the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality.

37. Now, insofar as the established position of law in respect of blacklisting is concerned, mere breach of a contract is not sufficient to merit an order of blacklisting. A Coordinate Bench of this Court had eloquently explained this legal position in the following extracts of its decision in Coastal Marine Construction and Engineering Limited Vs. Indian Oil Corporation Ltd. 2019 SCC Online Del 6542: “35. It is now well settled that blacklisting a person visits him with serious adverse consequences. In Erusian Equipment & Chemicals Ltd v. State of West Bengal: (1975) 1 SCC 70, the Supreme Court had observed as under:— “The blacklisting order does not pertain to any particular contract. The blacklisting order involves civil consequences. It casts a slur. It creates a barrier between the persons blacklisted and the Government in the matter of transactions. The blacklists are “instruments of coercion”.”

36. The Supreme Court in Gorkha Security Services v. Government (NCT of Delhi): 2014 SCC OnLine SC 599 had made the following observation: “With blacklisting many civil and/or evil consequences follow. It is described as “civil death” of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in government tenders which means precluding him from the award of government contracts.”

37. Indisputably, the impugned orders blacklisting the petitioner have severe adverse consequences for the petitioner. It is not disputed that the petitioner is essentially involved in executing contracts for various PSUs and Government agencies. It is usual for all Government undertakings and PSUs to specify eligibility criteria that excludes any person who has been blacklisted by any other Government agency, from participating in contracts or for tendering for contracts with Government agencies. Undisputedly, the import of the impugned orders blacklisting the petitioner is that the petitioner would also be disabled from participating in bidding processes or entering into contracts with other PSUs and Government agencies. The magnitude of the punitive measure is further enhanced as the petitioner has three independent business verticals and the business of rendering marine support is a small fraction of the overall business of the petitioner. The impugned orders would not only affect the petitioner in conducting the business with regard to marine support but also disable the petitioner from executing contracts relating to its other business verticals. xxx

41. As observed by the Supreme Court in Erusian Equipment & Chemicals Ltd. (supra), an order of blacklisting casts a slur on the party being blacklisted and is stigmatic. Given the nature of such an order and the import thereof, it would be unreasonable and arbitrary to visit every contractor who is in breach of his contractual obligations with such consequences. In Sarku Engineering Services (supra), a Division Bench of the Bombay High Court considered the case of a contractor (the petitioner therein) who had been blacklisted on the allegation that it was responsible for major delay in execution of a contract entered into with Oil and Natural Gas Corporation Limited (respondent no. 2 therein). The contractor disputed the allegation that it was in breach of its obligations; however, Oil and Natural Gas Corporation Limited found the performance of the petitioner therein to be unsatisfactory and, therefore, decided to avoid future dealings with the said petitioner. The question whether the petitioner therein was, in fact, responsible for the delay was a disputed question that was pending adjudication by an arbitral tribunal. In the aforesaid context, the Bombay High Court had observed as under:—

42. Plainly, if a contractor is to be visited with the punitive measure of blacklisting on account of an allegation that he has committed a breach of a contract, the nature of his conduct must be so deviant or aberrant so as to warrant such a punitive measure. A mere allegation of breach of contractual obligations that is disputed, per se, does not invite any such punitive action. In the present case, IOCL had relied upon the Blacklisting Guidelines in support of the impugned orders. In terms of paragraph 2.1(i) of the Blacklisting Guidelines, a party could be put on a holiday list if he had committed a breach of a contract.”

38. Essentially, what makes a decision to blacklist serious are the consequences that are borne from it, for the person in respect of whom it is passed. Not only does such a blacklisting order significantly dent the reputation and goodwill that the company enjoys in the market and may have spent years cultivating, it also deprives them from a level playing field in respect of future business opportunities. As was aptly put by the Supreme Court in Erusian Equipment & Chemicals Ltd. Vs. State of W.B. (1975) 1 SCC 70, blacklisting is an ‘instrument of coercion’ which has the effect of creating a disability. Usually, when participating in a tender, the bidder is required to furnish a statement undertaking that it has not been blacklisted by any institution so far and, if that is not the case, provide information of such blacklisting. This serves as a record of the bidder’s previous experience which gives the purchaser a fair picture of the bidder and the conduct expected from it. Therefore, while the debarment itself may not be permanent and may only remain effective for a limited, pre-determined period, its negative effect continues to plague the business of the debarred entity for a long period of time. As a result, it is viewed as a punishment so grave, that it must follow in the wake of an action that is equally grave.

39. This begs the question, does non-disclosure of the contract with the NCI warrant debarment of the petitioner from all hospitals and centres of the respondent for a period of two years, as directed under the impugned order? In the light of the discussion thus far, it is clear that while the conduct of the petitioner was to some extent marred with omissions and may not have been completely fair, the same was not in clear violation of the contract between the parties, seeing that there were no contractual provisions addressing the peculiar circumstances that arose in this case, nor can the petitioner’s omissions be characterized as being grave enough to have caused serious harm or financial losses to the respondent.

40. On the other hand, the petitioner has already suffered enormous financial losses as a result of having its tender with the respondent scrapped, which has only mushroomed in the aftermath of the impugned order. It needs to be noted that solely on the ground of the existence of the impugned debarment order, the petitioner’s bid submitted on 29.07.2021 was quickly declared non-responsive by Sawai Man Singh Hospital, Jaipur on 30.07.2021, in respect of the tender bearing NIB No. 1350 dated 28.04.2021. The petitioner has also placed on record a letter dated 29.07.2021 received from King George’s Medical University, Lucknow where the petitioner has participated in a tender as well, requesting for more details of the impugned order. Keeping in view that blacklisting orders involve consequences for the contractor leading to its civil death, the impugned order appears to be operating the same way for the petitioner and is exhibiting a domino effect, inasmuch as other government medical institutions/hospitals are now relying on the impugned blacklisting decision to bar the petitioner from participating in their tenders. In this manner, there is an imminent and grave threat to the remaining 67 tenders that the petitioner is presently engaged under, with other medical institutions, and, as per its own calculation, the petitioner apprehends a further potential loss of business of INR 200 crore on account of the impugned order.

41. Now, the respondent is right to contend that the equipment was not routine, but was a specialized item that required high quality manufacturing and maintenance services. In goods of such nature which are used by medical professionals in the course of treatment and have a real time impact on the lives of persons, the petitioner was required to consistently maintain a high ethical standard and, to that end, had the solemn responsibility to ensure absolute transparency in respect of the equipment and to disclose all relevant information relating to it. Be that as it may, the respondent was free to proceed under the contract and institute appropriate proceedings against the petitioner for breach thereof, instead of travelling beyond the contours thereof to fasten it with the rather harsh punishment of being blacklisted. The petitioner has already suffered the blacklisting and has had its bids rejected on that count, for about four months at this point.

42. An equally important factor to be considered at this point is that when it comes to sophisticated, specialized equipment to be used by medical professionals, such as the one sought by the respondent in the tender in question, the number of manufacturers in the country are quite limited. It is also an admitted fact that amidst such limited competition, the petitioner happens to be a notable and well-regarded player in this business, and has executed numerous supply contracts for such medical equipment in the past, without any complaint. In fact, the petitioner has been engaged by the respondent many times, with no allegations of fraudulent conduct, and has successfully rendered its services under all such contracts to the full satisfaction of the respondent. I cannot also lose sight of the fact that the impugned order is likely to adversely impact public healthcare facilities as well, considering that there are over 600 units of GENII/Harmonic, supplied by the petitioner, that are presently installed in several government institutions in the country and are being used to carry out approximately 1,10,000 procedures annually. The impugned order blacklisting the petitioner is likely to have a negative effect on the fresh orders for consumables being placed with the petitioner, by its existing customers against these earlier orders. This, in the long run, may compromise the integrity of medical procedures conducted with the equipment supplied by the petitioner. Above all, if the debarment order were allowed to operate, it would be an albatross around the petitioner’s neck, singling it out and prejudicing its business from crossing the minimum threshold in all tender processes of having an unblemished past experience of providing the services in question. I, thus, have no hesitation in holding that the decision to blacklist the petitioner is entirely unwarranted in the facts of the present case.

43. For the aforesaid reasons, the writ petition is partly allowed by setting aside the impugned order dated 29.04.2021, insofar as it debars the petitioner from participating in any tenders issued by AIIMS for a period of two years. However, in view of my findings hereinabove, I see no reason to interfere with the cancellation of the supply order under the impugned order.

JUDGE AUGUST 25, 2021 kk