Kerala High Court quashes Government’s decision to exclude Contractor from undertaking Government work without prior Hearing

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In a petition heard by Justice PB Suresh Kumar, the Kerala HC on 4th May ruled that a contractor cannot be blacklisted without a prior hearing.

Facts of the Case

The Kerala State Transport Project (KSTP) excluded the Joint Venture (JV) of M/s RDS Project Ltd. And Cherian Varkey Constructions for the execution of the Punalur – Ponkunnam Road upgradation work. The Petitioner contended that such an exclusion has the effect of blacklisting them and thereby “… preventing them from the privilege and advantage of entering into a lawful relationship with the Government and public bodies for gains.”

The KSTP made such an exclusion from the current bidding process as one of the JV partners, M/s RDS Projects Ltd. was charged with a case by the Vigilance and Anti-Corruption Bureau of the State Government post appearance of cracks in the Palarivattom flyover built by them.

Arguments before the Court

It was argued that decisions of that nature cannot be taken without affording an opportunity of hearing and without the competent authority entering into an “objective satisfaction” as to the desirability to exclude them from entering into the advantageous relationship with the Government or public bodies.

The counsel also placed reliance on Erusian Equipment & Chemicals Limited v. State of West Bengal, (1975) 1 SCC 70, to contend that such a decision is against all principles of natural justice and violative of Art. 14 of the constitution of India. The counsel also highlighted the principle of presumption of innocence unless proven guilty through a fair trial and cited the UDHR and ICCPR to substantiate the same.

M/s. RDS Projects Ltd. was not blacklisted by the state of the KSTP by proper notice, in an appropriate manner, and it was argued that excluding them merely for the reason that a case was registered against them is not a justification in disqualification of the JV of the petitioner.

The counsel for petitioners argued that since the bidding process was one to be conducted in terms of the guidelines of the World Bank, as the Kerala government was to apply part of the proceeds of the financial aid received from the World Bank for the execution of the work; and insofar as the JV of the petitioner does not suffer from any disqualification in terms of the guidelines of the World Bank, the disqualification of the JV from the bidding process is “wholly unjust and arbitrary.”

KSTP decided to execute the work with the state share of the amount earmarked for the KSTP projects and therefore the procurement guidelines of the World Bank need not be followed as such. It was also submitted that insofar as the JV is liable to be disqualified and the current bid-holder, the 7th respondent is willing to execute the work at the offer made by the JV of the petitioner.

Court’s Decision

The court duly noted that such exclusion amounted to blacklisting and reiterated the principle laid in Patel Engineering Ltd.v. Union of India and Ors., (2012) 11 SCC 257,  that blacklisting shall be for a legitimate purpose and the only legal limitation upon the exercise of such power is that the State or the instrumentality of the State shall act fairly and rationally without in any way being arbitrary.

The court also held the post-tender negotiations with another bidder, the 7th respondent in the instant petition, as improper and contrary to norms. KSTP was to re-tender the whole process upon a valid disqualification of the bid of the JV.

Based on this very principle, the Kerala HC quashed the decision of the KSTP to blacklist the joint venture of M/s RDS Project Ltd. And Cherian Varkey Constructions from the bid for the execution of the work and also directed the State Government to complete the proceedings contemplated for blacklisting M/s RDS Projects Ltd. as per the norms, after giving them notice indicating the grounds on which they are proposed to be blacklisted from bidding for government tenders.


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