Erusian Equipment & Chemicals Ltd.
Vs. State of West Bengal & ANR [1974] INSC 237 (11 November 1974)
RAY, A.N. (CJ) RAY, A.N. (CJ) MATHEW, KUTTYIL
KURIEN UNTWALIA, N.L.
CITATION: 1975 AIR 266 1975 SCR (2) 674 1975
SCC (1) 70
CITATOR INFO :
RF 1977 SC1496 (20) R 1978 SC 930
(15,16,17,18) R 1979 SC1628 (12,21) RF 1987 SC1086 (28)
ACT:
Constitution of India, 1950, Art. 14-Black
listing of contractors without opportunity to show cause-Validity.
HEADNOTE:
Certain persons engaged in the business of
purchase export of Cinchona pro ducts, and others who were on the approved list
of the Director General, Supplies and Disposals, were put on the black list by
the Government, because, Government had information that they were indulging in
some malpractices.
On the question whether they were entitled to
a notice to be heard, before they were put on the black list,
HELD : (1) Under Art. 298 of the Constitution
the executive power of the Union and the State shall extend to the carrying on
of any trade and to the acquisition, holding and disposal of property and the
making of contracts for any purpose. The State can carry on executive function
by making a law or without making a law. The exercise of such powers and
functions in trade by the State is subject to Part III of the Constitution.
Article 14 speaks of equality before the law and equal protection of the laws.
Equality of opportunity applies to matters of public contracts. The State need
not enter into any contract with anyone but if it does, it must do so fairly without
discrimination and without unfair procedure. No one has any right to enter into
a contract with the Governor quotations for the purchase of goods. This
privilege arises because it is the Government which is trading With the public,
and the democratic form of Government demands equality and absence of
arbitrariness and discrimination in such transactions.
The activities of the Government have a
public element and, therefore, there should be fairness and equality. [677C-E,
G; 678D-E] (2) A body maybe under a duty to give fair consideration to the
facts and to consider the representation but not to disclose details of
information in its possession.
Sometimes the duty to act fairly can also be
sustained without providing opportunity for an oral hearing. It will depend
upon the nature of the interest affected, and the circumstances in which the
power is exercised and the nature of sanctions involved therein. [678H-679B]
(3) Exclusion of 'a member of the public from dealing with a State in sales
transactions has the effect of preventing him from purchasing and doing a
lawful trade in goods by discriminating against him in favour of other people.
The State can impose reasonable conditions regarding rejection and acceptance
of bids or qualifications of bidders. Just as an exclusion of the lowest tender
will be arbitrary, similarly exclusion of a person. who offers the highest
price from participating in a public auction would also have the same aspect of
arbitrariness. [678F-G] (4) Black listing has the effect of preventing a person
from the privilege and advantage of entering into lawful relationship with the
Government for purposes of gain. A person who is on the approved list is unable
to enter into advantageous relations With the Government because of the order
of black listing. A person who has been dealing with the Government in the
matter of sale and purchase of materials ha& a legitimate interest or
expectation. Black listing tarnishes one's reputation and reputation is a part
of person's character and personality. The fact that a disability is created by
the order of black listing indicates that the relevant authority is to have an
objective satisfaction. Fundamentals of fair play require that the person
concerned should be given an opportunity to represent his case before be is put
on the black list.
[678EF; 679B-C] 675
ORIGINAL JURISDICTION : Writ Petitions Nos.
34 of 1974 and 959 of 1973.
Petition under Art. 32 of the Constitution of
India and Civil Appeal No. 318 of 1974.
From the judgment and order dated the 15th
September 1973 of the Bombay High Court in Appeal No. 38 of 1973.
D. C. Singhania, C. N. Murthy, (In W.P. No.
34/74), Madan Bhatia and Shiv Khorana, (In W.P. No. 959/73) and M. K.
Garg, for the petitioners (In W.P. No. 34/74
& 959/73).
B. Sen, D. N. Mukherjee, Sukumar Basu and G.
S.
Chatterjee, for the respondents (In W.P. No.
34/74 and 959/73).
L. N. Sinha, Solicitor General of India, P.
P. Rao and M.N. Shroff, for the appellant (In C.A. No. 318/74).
Haroon S. Kably and S. Markandeya, for the respondents
(In C.A. No. 318/74).
The Judgment of the Court was delivered by
RAY, C.J.-The two Writ Petitions and the Civil Appeal raise the question as to
whether a person who is put on the black list by the State Government is
entitled to a notice to be heard before the name is put on the black list.
Sale of Cinchona is held by the State
Government at meetings of the Sales Committee. Sealed quotations are invited
for intending buyers. The State maintains a list of buyers or bidders. The
State has the right to reject a bid at an auction.
The petitioners in the Writ Petitions were
engaged in the business of purchase and export of Cinchona products between the
years 1966 and 1971. They submitted tender for purchase of Cinchona. Their
tender was accepted. They entered into contracts with the State Government
during those years for purchase of Cinchona for large sums of money.
The petitioners submitted tender once on 15th
February, 1973 and again on 4 December, 1973. The petitioners allege that since
the month of December, 1970 all offers of the petitioners were rejected though
in most cases their offer was the highest. The petitioners contend that there
is discrimination and lack of fair play at the sale. The petitioners submit
that they are entitled to receive the same treatment and to be given the same
chance as anybody else for the purchase of Cinchona. The petitioners are
interested in the purchase of Cinchona in course of their trade and business.
The respondent State alleges that the
petitioners were guilty of mis-declaration of goods in their export
transactions. The Sales Committee of the State learnt from a secret letter from
the Collector of Customs, Calcutta that the firm of the petitioners was
involved in 676 malpractices, and their case was under investigation. The Sales
Committee at a meeting on 21 January, 1971 resolved not to deal with the firm
of the petitioners till the firm was cleared of charges of malpractices. It is
because of this resolution that the tender of the petitioners was not accepted.
The petitioners according to the respondent came to know this resolution at the
meeting of the Sales Committee on 4 December, 1973. The State could not however
produce the original resolution in this Court.
It may be mentioned here that the petitioners
have challenged the charges and cases under the Foreign Exchange Regulations
Act in the High Court at Calcutta in Writ Petition No. 959 of 1973 which is
pending.
The respondent in Civil Appeal No. 318 of
1974 was on the, approved list of the Director General, Supplies and Disposals
since the year 1942. The last renewal of registration of the respondent was on
5 June, 1963 for three years. Certain reports were received against the
respondent regarding shortage of timber. The Special Police Establishment took charge
of account books of the respondent in the month of August, 1964. A Departmental
enquiry was made against the store-keeper and the Store-holder in the Bombay
Telephone Workshop. Those two employees were suspended in the month of
December, 1964. On 4 December, 1965 the department put the name of the
respondent on the black list. The employees of the Government who had been
suspended in the year 1964 were dismissed on 1 June, 1967.
In the month of January, 1968 the respondent
applied to the Court for return of the account books which had been taken by
the Special Police Establishment. In the month of March, 1968 the account books
were ordered to be returned.
The respondent filed Writ Petition in the
High Court at Bombay on 20 January, 1969. On 12 January, 1973 the High Court
allowed the writ petition of the respondent setting aside the order whereby the
respondent was blacklisted. The State filed an appeal. The High Court of Bombay
dismissed the appeal. The present appeal is against that judgment.
The employees who had been dismissed by the
State also applied to the High Court for setting aside their dismissal.
The High Court accepted the prayer of the
employees by an order dated 3 August, 1972.
In Writ Petitions counsel for the State
submitted that the petitioner was not entitled to any order of mandamus
inasmuch as the sales were contractual. It was said that the petitioner was not
entitled as of right to acceptance of tender. It was also said that the
attitude of the State was not discriminatory against the petitioner but that
the State wanted that the pending proceedings against the petitioner for
alleged violation of Foreign Exchange Regulation Act should be adjudicated
first and thereafter the State would deal with the petitioner.
677 The Solicitor General on behalf of the
appellant in Civil Appeal No. 318 of 1974 made these submissions. The
Government could choose any person for entering into a contract. Further, the
State could insist on dealing with persons in whom the State had trust for
integrity. The sales were not under a statute. Black-listing is an internal and
confidential step. Rights under Articles 14, 19 and 21 do not extend to the
compelling of any third party including the Government to negotiate or enter
into a contract. The duty to act fairly may include in many cases duty to act
judicially and those would be cases where there is existing vested rights. The
duty to act fairly would not always mean a duty to hear the party affected.
Whereas public blacklisting is not confidential, departmental blacklisting will
be a confidential matter. If natural justice does not come into play in
rejecting a bid, natural justice does not operate at the time of entering into
contract.
Under Article 298 of the Constitution the
Executive power of the Union and the State shall extend to the carrying on of
any trade and to the acquisition, holding and disposal of property and the
making of contracts for any purpose. The State can carry on executive function
by making a law or without making a law. The exercise of such powers and
functions in trade by the State is subject to Part III of the Constitution.
Article 14 speaks of equality before the law and equal, protection of the laws.
Equality of opportunity should apply to matters of public contracts.
The State has the right to trade. The State
has there the duty to observe equality. An ordinary individual can choose not
to deal with any person. The Government cannot choose to exclude persons by
discrimination. The order of blacklisting, has the effect of depriving a person
of equality of opportunity in the matter of public contract. A person who is on
the approved list is unable to enter into advantageous relations with the
Government because of the order of blacklisting. A person who has been dealing
with the Government in the matter of sale and purchase of materials has a
legitimate interest or expectation. When the State acts to the prejudice of a
person it has to be supported by legality.
But for the order of blacklisting, the
petitioner would have been entitled to participate in the purchase of cinchona.
Similarly the respondent in the appeal would
also have been entitled but for the order of blacklisting to tender competitive
rates.
The State can enter into contract with any
person it chooses. No person has a fundamental right to insist that the
Government must enter into a contract with him. A citizen has a right to earn
livelihood and to pursue any trade. A citizen has a right to claim equal
treatment to enter into a contract which may be proper, necessary and essential
to his lawful calling.
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".
678 In passing an order of blacklisting the
Government department acts under what is described as a standardised Code. This
is a Code for internal instruction. The Government departments make regular
purchases. They maintain list of approved suppliers after takings into account
the financial standard of the firm, their capacity and their past performance.
The removal from the list is made for various reasons. The grounds on which
blacklisting may be ordered are if the proprietor of the firm is convicted by
court of law or security considerations so warrant or if there is strong
justification for believing that the proprietor or employee of the firm, has
been guilty of malpractices such as bribery, corruption, fraud. or if the firm
continuously refuses to return Government dues or if the firm employs a
Government servant, dismissed or removed on account of corruption in a position
where he could corrupt Government servant. The petitioner was blacklisted on
the ground of justification for believing that the firm has been guilty of
malpractices such as bribery, corruption, fraud. The petitioners were
blacklisted on the ground that there were proceedings pending against the
petitioners for alleged violation of provisions under the Foreign Exchange
Regulations Act.
The Government is a government of laws and
not of men. It is true that neither the petitioner nor the respondent has any
right to enter into a contract but they are entitled to equal treatment with
others who offer tender or quotations for the purchase of the goods. This
privilege arises because it is the Government which is trading with the public
and the democratic form of Government demands equality and absence of
arbitrariness and discrimination in such transactions. Hohfeld treats
privileges as a form of liberty as opposed to a duty. The activities of the
Government have a public element and, therefore, there should be fairness and
equality. The State need not enter into any contract with anyone but 'if it
does so, it must do as fairly without discrimination and without unfair
procedure. Reputation is a part of person's character and personality.
Blacklisting tarnishes one's reputation.
Exclusion of. a member of the public from
dealing with a State in sales transactions has the effect of preventing him
from purchasing and doing a lawful trade in the goods by discriminating against
him in favour of other people. The State can impose reasonable conditions
regarding rejection and acceptance of bids or qualifications of bidders. Just
as exclusion of the lowest tender will be arbitrary similarly exclusion of a
person who offers the highest price from participating at a public auction
would also have, the same aspect of arbitrariness.
Where the State is dealing with individuals
in transactions of sales and purchase of goods, the two important factors are
that an individual is entitled to trade with the Government and an individual
is entitled to a fair and equal treatment with others. A duty to act fairly can
be interpreted as meaning a duty to observe certain aspects of rules of natural
justice. A body may 'be under a duty to 679 give fair consideration to the
facts and to consider the representations but not to disclose to those persons
details of information in its possession. Sometimes duty to act fairly can also
be sustained without providing opportunity for an oral hearing. It win depend
upon the nature of the interest to be affected, the circumstances in which a
power is exercised the nature of sanctions involved therein.
Blacklisting has the effect of preventing a
person from the privilege and advantage of entering into lawful relationship
with the Government for purposes of gains. The fact that a disability is
created by the order of blacklisting indicates that the relevant authority is
to have an objective satisfaction. Fundamentals of fair play require that the
person concerned should be given an opportunity to represent his case before he
is put on the blacklist.
With regard to the case of the petitioners,
it is made clear that the authorities will give an opportunity to the
petitioners to represent their case, and the authorities will hear the
petitioners as to whether their name should be put on the blacklist or not.
This is made clear that the decision on this question will not have any effect
on the proceedings pending in Calcutta High Court where the petitioner has
challenged the adjudication proceedings under the Foreign Exchange Regulations
Act. Any decision of the authorities on the blacklisting will have no effect on
the correctness of any of the facts involved in those proceedings.
For these reasons, the petitioners succeed.
The appeal is dismissed. The parties will pay
and bear their own costs.
V.P.S. Appeal dismissed.
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