Cembond Constructions Pvt Ltd v. National Thermal Power Corporation Limited

12. It is submitted that the present challenge is an indirect challenge to debarment order as passed by the APCPL, for which the petitioner has already preferred an appeal which is pending before the appropriate authority. The petitioner is also agitating its contractual disputes before an arbitral tribunal. As such, it is contended that the present petition ought not to be entertained. The respondent no.1 also alleges that the petitioner sought to wilfully conceal the extant ‘NTPC debarment policy’, and as such, has approached the Court with unclean hands.

13. The respondent no.2 also reiterates the submissions advanced by the learned counsel on behalf of respondent no.1 and states that the banning order qua the petitioner is strictly in terms of the applicable policy. It is submitted that the show cause notice originally issued by the respondent no.2 to the petitioner proposed banning for a period of 2 years. However, the respondent no.2 took a lenient view and the petitioner was banned only for a period of one year.

14. Having given my anxious consideration to the facts and circumstances of the case, I find merit in the contention raised on behalf of the petitioner that the impugned circular dated 07.03.2025, inasmuch as it seeks to ban the business dealings between the petitioner and NTPC and other JVs/subsidiaries of NTPC, is unsustainable. The reasons are as follows:-

(i) Admittedly, the petitioner’s privity of contract is only with respondent no.2/APCPL. The petitioner has no contractual association with respondent no.1. The petitioner’s dealing with respondent no.2/APCPL, which is an independent corporate entity, cannot have any bearing or impinge upon the petitioner’s rights to pursuing business dealings with entities other than respondent no.2/APCPL. It has been emphasised by the Supreme Court time and again, that banning/debarment is akin to civil death and that such an action must be taken with extreme circumspection and after adhering to procedural safeguards as mandated under law, and in consonance with principles of natural justice. The extension of banning order passed by the respondent no.2, to proscribe business dealings of the petitioner qua entities which do not have any contractual dealings with petitioner, constitutes an arbitrary, disproportionate and unwarranted restriction of the legal and fundamental rights of the petitioner and its shareholders. The same cannot be countenanced.

(ii) In any event, in case respondent no.1/NTPC or any other

JVs/subsidiaries seeks to debar the petitioner, a mandatory prerequisite is to issue an independent show cause notice with regard thereto. The same is mandated in terms of judgment of Gorkha Security Services (supra), in which it has been observed as under:

government contracts.” The same is also mandated in terms of judgment of the Supreme Court in UMC Technologies Private Limited vs. Food Corporation of India and Anr. (2021) 2 SCC 551. It was, inter alia, held as under: “13. At the outset, it must be noted that it is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself 14.. The basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously. An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent. This Court in Nasir Ahmad v. Custodian General, Evacuee Property [Nasir Ahmad v. Custodian General, Evacuee Property, (1980) 3 SCC 1] has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the noticee to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard. Specifically, in the context of blacklisting of a person or an entity by the State or a State Corporation, the requirement of a valid, particularised and unambiguous show-cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatisation that accrues to the person/entity being blacklisted. Here, it may be gainful to describe the concept of blacklisting and the graveness of the consequences occasioned by it. Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. This privilege arises because it is the State who is the counterparty in government contracts and as such, every eligible person is to be afforded an equal opportunity to participate in such contracts, without arbitrariness and discrimination. Not only does blacklisting take away this privilege, it also tarnishes the blacklisted person's reputation and brings the person's character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person XXX XXX XXX.

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

22. To test whether the above stipulations as to the contents of the show cause have been satisfied in the present case, it may be useful to extract the relevant portion of the said show-cause notice dated 10-4-2018 wherein the Corporation specified the actions that it might adopt against the appellant:. “Whereas, the above cited clauses are only indicative and not exhaustive. Whereas, it is quite evident from the sequence of events that M/s UMC Technologies Pvt. Ltd., Kolkata has violated the condition/clauses governing the contract due to its abject failure and clear negligence in ensuring smooth conduct of examination. As it was the sole responsibility of the agency to keep the process of preparation and distribution of question paper and conducting of exam in highly confidential manner, the apparent leak points towards, acts of omission and commission on the part of M/s UMC Technologies Ltd., Kolkata. Whereas, M/s UMC Technologies Pvt. Ltd., Kolkata is hereby provided an opportunity to explain its position in the matter before suitable decision is taken as per T&C of MTF. The explanation if any should reach this office within a period of 15 days of receipt of this notice failing which appropriate decision shall be taken ex parte as per terms and conditions mentioned in MTF without prejudice to any other legal rights and remedies available with the Corporation.”

23. It is also necessary to highlight the order dated 9-1-2019 passed by the Corporation pursuant to the aforesaid notice, the operative portion of which reads as under: “After having examined the entire matter in detail, the shortcomings/negligence on the part of M/s UMC Technologies Pvt. Ltd. stands established beyond any reasonable doubt. Now, therefore in accordance with Clause 42.1(II) of the governing MTF, the competent authority hereby terminates the contract at the risk and cost of the Agency. As per Clauses 10.[1] & 10.[2] the said M/s UMC Technologies Pvt. Ltd. is hereby debarred from participating in any future tenders of the Corporation for a period of five years. Further, the security deposit too stands forfeited as per Clause 15.[6] of MTF. This order is issued without prejudice to any other legal remedy available with FCI to safeguard its interest.”

24. A plain reading of the notice makes it clear that the action of blacklisting was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its showcause notice. After listing 12 clauses of the “Instruction to Bidders”, which were part of the Corporation's bid document dated 25-11-2016, the notice merely contains a vague statement that in light of the alleged leakage of question papers by the appellant, an appropriate decision will be taken by the Corporation. In fact, Clause 10 of the same Instruction to Bidders section of the bid document, which the Corporation has argued to be the source of its power to blacklist the appellant, is not even mentioned in the show-cause notice. While the notice clarified that the 12 clauses specified in the notice were only indicative and not exhaustive, there was nothing in the notice which could have given the appellant the impression that the action of blacklisting was being proposed. This is especially true since the appellant was under the belief that the Corporation was not even empowered to take such an action against it and since the only clause which mentioned blacklisting was not referred to by the Corporation in its show-cause notice. While the following paragraphs deal with whether or not the appellant's said belief was wellfounded, there can be no question that it was incumbent on the part of the Corporation to clarify in the show-cause notice that it intended to blacklist the appellant, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same.

25. The mere existence of a clause in the bid document, which mentions blacklisting as a bar against eligibility, cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show-cause notice. The Corporation's notice is completely silent about blacklisting and as such, it could not have led the appellant to infer that such an action could be taken by the Corporation in pursuance of this notice. Had the Corporation expressed its mind in the show-cause notice to blacklist, the appellant could have filed a suitable reply for the same. Therefore, we are of the opinion that the show-cause notice dated 10-4- 2018 does not fulfil the requirements of a valid show-cause notice for blacklisting. In our view, the order of blacklisting the appellant clearly traversed beyond the bounds of the show-cause notice which is impermissible in law. As a result, the consequent blacklisting order dated 9-1-2019 cannot be sustained.”

15. In the present case, the banning of the petitioner qua NTPC and other entities (besides APCPL) is not preceded by any show cause notice. As such, such action falls foul of the dicta laid down in Gorkha Security Services (supra) and UMC Technologies Private Limited (supra).

(iii) Even as per the policy for debarment relied upon by the petitioner, it is pertinent to note that the scope of the policy viz. debarment is as under: “2. Scope 2.[1] NTPC reserves its right to withhold or ban or suspend business dealings with any Agency, if such Agency is found to have committed misconduct or any of its action(s) fall into any such categories as laid down in this policy.” Thus, the said policy clearly deals with the right of NTPC to withhold or ban or suspend the business dealings with an agency. Insofar as the contracts which are not handled by the NTPC corporate centre, the policy in term of Clause 9(ii) clearly contemplates that concerned JVs/subsidiaries shall be free to adopt the procedure prescribed in the policy. Clause 9 thereof provides as under:

issuance of such Notice or Order to the delinquent agency. Further, the appeal of the Agency against the above Order (under Para 5.12) shall be reviewed by Appellate Authority in NTPC. Appellate Authority would consider the appeal and pass appropriate order which shall be communicated to the Agency as well as the Competent Authority and CEO of concerned JVs/Subsidiaries.

(ii) The Tenders/Contracts which are handled by JVs/Subsidiaries themselves

The procedure prescribed in the Policy shall appropriately be used by concerned JVs/Subsidiaries to deal with the cases of non/under performance and/or irregularities and/or misconduct and/or unethical practice observed in tenders/contracts handled by them.” In the present case, it is significant to note that the concerned contract between the respondent no.2/APCPL and the petitioner was not handled by respondent no.1/NTPC corporate centre nor was respondent no.1/NTPC involved in any way with the dealings between the petitioner and the respondent no.2/APCPL. As such, it was for the respondent no.2 to take action against the petitioner (which was done and against which appeal is pending). However, the policy does not expressly, contemplate that the decision taken by the said JVs would be applicable to spectrum of entities who are not involved in the decision-making process, even where the concerned contracts are not handled by NTPC Corporate Centre.

(iv) In any event, a debarment order issued by one entity cannot be extended to other group companies without any independent opportunity of hearing through a separate show cause notice. The principles of natural justice do not contemplate a cascading penalty in the absence of reasoned determination, (after procedural due process) by each entity proposing to inflict penalty.

16. For the above reasons, the impugned order cannot sustain; the same is, accordingly, set aside. Pending application also stands disposed of.

SACHIN DATTA, J SEPTEMBER 04, 2025/at/sl