Article 298 of the Constitution extends executive powers to the Union and the State for carrying on of any trade and to make contracts for any purpose. As any contractual relationship, an entity having right to contract has an inherent right of not to make the contract. On the same grounds government can choose not to do contract with any person or member of public and can also lead to blacklist them in extreme cases. In layman terms a blacklist is a list of persons organisations or countries that are penalised because they are believed to engage in unfavourable or unethical activity. Thus, the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into contractual relationship with such persons is also termed as blacklisting. It may also be referred as delisting or debarment.

Here the list of individuals or organisations is designated for a special discrimination or a boycott. Because the purpose of blacklist is to exclude and discriminate it can also result in unfair and illegal discrimination. The negative effects of being blacklisted can be quite considerable with huge inconvenience being the least of them, more severe effects include loss of credibility and goodwill, a decline in business with clients and financial hardships. In some cases, blacklists have done great damage to people’s lives locking them out of employment or denying them access to influential organisations. Due to these negative effects certain principles have been established by Courts of Law to protect the interests of private contractors. Action of blacklisting affects the concerned who is getting blacklisted and leads to the civil consequences, stigmatises the person or organisation getting blacklisted, affects its future business and maligns its image in the market. The order of blacklisting has the effect of depriving a person of equality of opportunity, especially in the matter of public contracts.

Circumstances in which a company can be blacklisted:

There can be many grounds on which a company can be blacklisted. The Central and various State Governments and their respective individual agencies have made distinguished rules and laid grounds for debarment to bring transparency in the system. Some common grounds and circumstances for debarring of a company are as follows:

1. There are sufficient & strong reasons to believe that the contractor or his employees has been guilty of malpractices such as bribery corruption or fraud.
2. Pilfering or unauthorized use or disposal of Government materials issued for specific works.
3. Where security considerations including suspected disloyalty to the state so warrant the blacklisting order.
4. Misbehaviour or threatening of departmental and supervisory officers during execution of work or tendering process.
5. Involvement in any sort of tender fixing.
6. Constant non-achievement of milestones on insufficient and imaginary grounds
7. Non-adherence to quality specifications despite being pointed out.
8. Persistent and intentional violation of important conditions of contract.
9. Submission of false/fabricated/forged documents for consideration of a tender.

However, it is to be noted that grounds are not limited to only these.

Power of Employer to Blacklist:

The Hon’ble Supreme Court has ruled that the government is empowered to blacklist and debar companies from bidding without any statutory law. Such commercial decisions, however, must be exercised fairly and not arbitrarily. As the activities of the government have a public element and, therefore, there should be fairness and equality. 

Thus, it can be summed up that power to blacklist is inherent with the party allotting contracts. It is to be based on the subjective satisfaction of the designated authority competent to pass the final order. However, such decisions should be taken without arbitrariness and discrimination against the contractor.

Procedures to be adopted by the Government Undertakings:

As aforementioned due to the vary discriminatory effect of blacklisting, it can have negative consequences for the Contractor. Arbitrary action of government can have severe implications on the business. Thus, to safeguard the rights of contractors, The Hon’ble Supreme Court have laid down several procedures and doctrines to be followed by the Government undertakings.  After a plethora of judgements, the law is finally settled that government undertaking can blacklist any contractor from future bids but must follow the principles:

A. Natural Justice and Audi Alteram partem i.e. issuing show cause notice and providing the opportunity to the contractor to be heard. The literal meaning of this rule is that party should be given a fair chance to present themselves with their relevant points and a fair trial should be conducted the principles are contained in art 14 and 21 of the Indian Constitution. It is obligatory and mandatory on the part of the designated authority to assign cogent reasons in support of the order of blacklisting because such an order bans business dealings. If the order does not disclose the reasons leading to the contractor being put on blacklist and also shows that the party likely to be affected by the order was not afforded an opportunity of being heard, then it shall be violative of principles of natural justice. The SC in the Erusian chemicals case laid down the law for notice to be given before blacklisting. Since the order of blacklisting has serious civil consequences for the affected company as such order affects the prospects of the business by depriving it the chance to do business with the government, earning money and it greatly tarnishes the reputation of the company, therefore the opportunity of being heard should be given to the company before taking any such decision

B. Doctrine of Proportionality i.e. the manner in which the blacklisting proceeding took and quantum of punishment.  Art 14 states that a state’s action cannot be arbitrary, it must be proportional. In Kulja Industries case, the SC observed that the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is inherent in the party allocating the contract, but where the party involved is state, any such decision is open to scrutiny not only based on principles of natural justice but also on the doctrine of proportionality. The administrative order of blacklisting may be termed as disproportional and unreasonable if the company is blacklisted for an unspecified period. “Suffice it to say that ‘debarment’ is recognized and often used as an effective method for disciplining deviant suppliers/contractors. What is notable is that the ‘debarment’ is never permanent. Thus, the provision for blacklisting a contractor cannot be for an indefinite period.

Remedies Available to Aggrieved Party:

The order of blacklisting has the effect of depriving a person from equality of treatment in the matter of public contract. The State is bound to ensure equality since it cannot choose to exclude persons by discrimination. A person who had been dealing with the Government for sale and purchase of material has a legitimate interest or expectation. It cannot be a matter of debate that the State can enter a contract with any person or to deal with it since no person can insist that Government must enter contract with him. But the order of blacklisting debars a person from dealing with the Government and is also a slur on him. The blacklist is thus, called an “element of coercion”.  A fair hearing to the party being blacklisted thus becomes an essential pre-condition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ court.

Punjab & Haryana High Court has held that it is open to parties to refer the issue of blacklisting to arbitration. The Court in this regard noted that there is no rule of law that prohibits parties from referring an issue relating to blacklisting to arbitration.  If a matter is pending adjudication before arbitrator, it is obligatory on the part of the respondent to wait for the outcome of the arbitration matter and not to act in a tearing haste.

Judicial Review of Blacklisting:

Any decision taken by the government or its instrumentalities to “blacklist” a business entity is subject to judicial review, the Supreme Court has said while stressing that the party affected should be given a fair hearing. When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be bore in mind. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:

Whether the process adopted, or decision made by the authority is mala fide or intended to favour someone;

OR

Whether the process adopted or decision made is so arbitrary and irrational that the court can say: “the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached”. Whether public interest is affected.

If the answers are in the negative, there should be no interference under Article 226.

Conclusion:

State has the responsibility towards its citizens. Sometimes, to act in favour of larger public Interest and to ensure that certain contractors are not engaged in public work again, the State blacklists such contractors in public interest. But, its decisions should not be discriminatory and arbitrary. They should follow the rule of Audi Alteram Partem and the Doctrine of Proportionality. Further, the Supreme Court has established that the principles of Natural Justice must be followed even if the State’s rules doesn’t mention it. Since, blacklisting has an everlasting black spot on one’s career, therefore, the Government should take care of the above mentioned principles and should not take it as a means of political vendetta.