Decision To Blacklist Should Be Strictly Within Parameters Of Law & Must Comport With Principle Of Proportionality: SC

The Supreme Court observed that any decision to blacklist should be strictly within the parameters of law and must comport with the principle of proportionality.

The Court was dealing with a civil appeal filed by a company against the judgment of the Calcutta High Court.

The three-Judge Bench comprising Justice B.R. Gavai, Justice Sanjay Karol, and Justice K.V. Viswanathan said, “The Division Bench has observed that blacklisting is a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. It also observed that between two private parties the right to take any such decision is absolute and untrammeled by any constraints whatsoever. The observations are too sweeping in their ambit and wholly overlook the fact that the respondent-Corporation is a statutory body vested with the duty to discharge public functions. It is not a private party. Any decision to blacklist should be strictly within the parameters of law and has to comport with the principle of proportionality.”

The Bench remarked that too readily invoking the debarment for ordinary cases of breach of contract where there is a bona fide dispute, is not permissible.

Senior Advocate P.S. Datta appeared for the appellants while Advocate Sujoy Mondal appeared for the respondents.

In this case, the appellant company named The Blue Dreamz Advertising Pvt. Ltd., participated in a tender issued by the Kolkata Municipal Corporation (KMC) for the allotment of advertisement spaces on street hoardings, bus passenger shelters, and kiosks. It emerged as the highest bidder for several clusters, quoting Rs. 3,70,00,000/- each for cluster nos. I, II, III, VI, and VIII. Following their confirmation of acceptance, issues arose regarding the execution of the contract. The appellant complained about the non-receipt of a formal work order, bank guarantee format, and faced difficulties in the execution of the project due to mismatches in the unit code numbers and locations of the hoardings, among other issues. The KMC demanded payment for June 2014, which led to further correspondence between the parties.

The appellant identified only 200 out of the 250 hoardings allotted and requested joint inspections to resolve discrepancies. Despite ongoing issues, the KMC insisted on payment for the months from July to September 2014. By December 2014, the KMC demanded a payment of over Rs. 8 crores, later increasing to Rs. 10.28 crores. It eventually blacklisted the appellant in July 2015, which was later challenged and temporarily revoked. Despite several show cause notices and the appellant's invocation of the arbitration clause, the KMC debarred the appellant for five years in March 2016 due to alleged non-payment and contract breaches. The appellant filed a writ petition against this decision before the High Court. The matter was carried in appeal by KMC and the Court allowed the same. Being aggrieved, the appellant approached the Supreme Court.

The Apex Court in view of the facts and circumstances of the case elucidated, “… 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.”

The Court noted that the appellant has been subjected to a disproportionate penalty and the KMC has lifted a sledgehammer to crack a nut.

“We are not here concerned with the correctness of the award. What it does signify is that there was a bona fide contractual dispute between the parties and we hold that the learned Single Judge was right in setting aside the order of debarment on the ground that there was a bona fide civil dispute between the parties”, it added.

The Court further said that merely saying that the blacklisting order carried reasons is not good enough and do the reasons justify the invocation of the penalty of blacklisting and is the penalty proportionate, was the real question.

“There has been no enquiry by the Division Bench as to whether the conduct of the appellant was part of the normal vicissitudes in business and common place hazards in commerce or whether the appellant had crossed the rubicon warranting a banishment order, albeit for a temporary period in larger public interest”, it also observed.

Accordingly, the Supreme Court allowed the appeal and set aside the impugned order of blacklisting.

Cause Title- The Blue Dreamz Advertising Pvt. Ltd. & Anr. v. Kolkata Municipal Corporation & Ors. (Neutral Citation: 2024 INSC 589)

Appearance:

Appellants: Senior Advocate P.S. Datta, AOR Anwesha Saha, and Advocate Salim Ansari.

Respondents: Advocate Sujoy Mondal, AOR L. C. Agrawala, and Advocate Pankaj Agarwal.

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