M/S Sk Electricals, Represented Through Its Proprietor Shri Santosh Kumar vs. Rites LTD., Represented Through Its Group General Manager (Civil) And Pu-Head, Erpo, Kolkata

Facts

M/s SK Electricals (the petitioner) was awarded a contract by RITES Ltd. (respondent no. 1), acting as an agent for Neyveli Uttar Pradesh Power Limited (NUPPL), for the design, supply, erection, testing, and commissioning of an OHE system. The contract price was Rs. 6,40,10,551/- excluding GST. The petitioner alleged hindrances from the respondents prevented contract execution. Respondent no. 2 issued notices on February 16, 2026, and February 25, 2026, warning of contract determination and potential forfeiture of performance guarantee and security deposit, and declaration as a 'poor performer' under Clause 3(a)(i) of the General Conditions of Contract (GCC). The contract was terminated on March 16, 2026, citing lack of concrete planning, no firm commitment for timely completion, and refusal to undertake additional works. Subsequently, on April 22, 2026, the petitioner was declared a 'Poor Performer' and placed on the 'Negative List of Contractors', debarring it from future tenders for two years.

Held

The Court held that the impugned letter dated 22.04.2026, to the extent it placed the petitioner in the 'Negative List of Contractors' for two years and debarred it from participating in future tenders, was liable to be quashed and set aside. The Court reasoned that no specific show cause notice was issued to the petitioner stating the grounds for debarment and the proposed penalty, thereby denying it an opportunity to defend itself. The Court found that the order of debarment was passed mechanically without application of mind and as an automatic consequence of contract termination, which is contrary to established legal principles. The Court relied on the Supreme Court's decisions in Techno Prints and A.K.G Construction and Developers Pvt. Ltd., emphasizing that debarment is not automatic upon contract termination and requires a specific notice and explanation. The Court also noted that the earlier notices dated 16.02.2026 and 25.02.2026 were merely warnings and did not fulfill the requirement of a show cause notice for blacklisting. However, the Court held that other actions of the respondents concerning the contract, including the declaration of the petitioner as a 'Poor Performer', did not warrant interference under writ jurisdiction, and the petitioner was at liberty to challenge those separately. The respondents were granted liberty to initiate fresh debarment proceedings after following due process.

Key Issues

1. Whether the order dated 22.04.2026, declaring the petitioner as a 'Poor Performer' and placing it in the 'Negative List of Contractors', is liable to be quashed and set aside? (Question of law) 2. Whether Clause 3(b) of the General Conditions of Contract, to the extent it relates to the declaration as a 'Poor Performer' without providing an appropriate opportunity of notice and hearing, is violative of the principles of natural justice and liable to be struck down? (Question of mixed law and fact) Petitioner's arguments: The petitioner argued that blacklisting requires a fair hearing, citing judgments like Erusian Equipment & Chemicals Ltd. and UMC Technologies. It contended that the notices dated 16.02.2026 and 25.02.2026 were warnings under Clause 3(iii) of GCC, not show cause notices for debarment under Clause 3(b). The petitioner asserted that administrative actions must be reasoned and that Clause 3(b) is arbitrary as it allows automatic declaration as a 'poor performer' without due process. The petitioner relied on Techno Prints and A.K.G Construction and Developers Pvt. Ltd. for the principle that debarment is not automatic upon contract termination and requires a specific notice and explanation. Respondents' arguments: The respondents argued that the notices dated 16.02.2026 and 25.02.2026 sufficiently warned the petitioner of the consequences, including debarment, and that the petitioner had an opportunity to respond. They contended that the termination of the contract justified the declaration as a 'Poor Performer' and placement on the 'Negative List'.