STATE OF ODISHA & ORS. versus M/S PANDA INFRAPROJECT LIMITED on 24 February 2022

STATE OF ODISHA & ORS.

v.

M/S PANDA INFRAPROJECT LIMITED

(Civil Appeal No. 1083 of 2022)

FEBRUARY 24, 2022

[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

Administrative Law: Government contracts – Blacklisting ofcontractor – Principle of natural justice – Judicial review –Respondent was awarded contract to construct a flyover over therailway level crossing – Post construction, a ten meter slab of flyovercollapsed which resulted in loss of life and property – A high levelinquiry was conducted which submitted a comprehensive report andfound respondent guilty – On the basis of such report, stategovernment issued a show cause notice to respondent and onconsidering its reply thereto, permanently banned it fromparticipating or bidding for any work to be undertaken by thegovernment – Respondent filed writ petition before High Court –High Court set aside the order of blacklisting on the ground ofviolation of principles of natural justice – On appeal, held:Blacklisting order was passed after considering the allegations inthe show cause notice, considering the reply and also by consideringthe material available on record and after following the procedureas per the Orissa Public Works Department Code – Thus, decisionof state government of blacklisting the respondent was not in breachof principles of natural justice – “Debarment” is recognised andoften used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission andcommission – It is for the State or appropriate authority to pass anorder of blacklisting/debarment in the facts and circumstances ofthe case – It was specifically found that the safety arrangementswere lacking severely in the construction work zone and qualityassurance was not emphasised as stipulated in the codes – HighCourt erred and exceeded its jurisdiction in exercise of powers underArt.226 of the Constitution of India in setting aside the blacklistingorder, that too, without adverting to the serious allegations and theact of omission and commission on the part of the contractor whichled to a serious incident of collapse of ten meter slab while concrete

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Awork of the deck was going on and due to which one person diedand eleven others were injured – However, to debar him permanentlycan be said to be too harsh a punishment – Blacklisting restrictedto five years.

Disposing of the appeals, the CourtB

HELD: 1. A detailed show cause notice was issued withspecific allegations to which the respondent-contractor submitteda detailed reply. After considering the allegations in the showcause notice, considering the reply and also by considering thematerial available on record the order of blacklisting was passed.C[Para 8.3][192-D]

Conclusion

2. As per the law laid down by this Court in a catena ofdecisions “debarment” is recognised and often used as aneffective method for disciplining deviant suppliers/contractorswho may have committed acts of omission and commission. It isDfor the State or appropriate authority to pass an order ofblacklisting/debarment in the facts and circumstances of the case.Therefore, the High Court has erred and has exceeded itsjurisdiction in exercise of powers under Article 226 of theConstitution of India by quashing and setting aside the blacklistingorder, that too, without adverting to the serious allegations andEthe act of omission and commission on the part of the contractorwhich led to a serious incident of collapse of ten meter slab whileconcrete work of the deck was going on and due to which oneperson died and eleven others were injured. It was specificallyfound that the safety arrangements were lacking severely in theFconstruction work zone. It was also found that quality assurancewas not emphasised as stipulated in the codes and manuals andas per the Agreement. Therefore, the High Court ought to haveconsidered the seriousness of the incident in which due toomission and commission on the part of the contractor inconstructing the flyover one person died and eleven others wereGinjured. [Para 8.7][193-C-F]

3. In the instant case, it might be true that the offence wasthe first offence committed by the contractor. However,considering the seriousness of the matter that due to the omission H

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and commission on the part of the contractor a serious incidenthad occurred as there was a collapse of a ten meter slab whileconstructing a flyover in which one person died and eleven othersinjured, as such the contractor does not deserve any leniency.However, to debar him permanently can be said to be too harsh apunishment. Blacklisting is restricted to five years in the fitnessof things. [Para 9.1][194-F-H]

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Kulja Industries Limited v. Chief General Manager,Western Telecom Project Bharat Sanchar Nigam Limitedand Ors. (2014) 14 SCC 731 : [2013] 14 SCR 430;Grosons Pharmaceuticals (P) Ltd. & Anr. v. State of U.P.(2001) 8 SCC 604 : [2001] 2 Suppl. SCR 567; GorkhaSecurity Services v. Govt. (NCT of Delhi) & Ors. (2014)9 SCC 105 : [2014] 13 SCR 617 – relied on.

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Erusian Equipment & Chemicals Ltd. v. State of WestBengal and Anr. (1975) 1 SCC 70 : [1975] 2 SCR 674;M/s. Daffodills Pharmaceuticals Ltd. & Anr. v. State ofU.P. & Anr. 2019 (17) Scale 758 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1083of 2022.

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From the Judgment and Order dated 23.03.2021 of the High Courtof Orissa at Cuttack in Writ Petition (C) No.26408 of 2017.

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Civil Appeal No.1084 of 2022.

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Ashok Kr. Parija, AG, Ravi Prakash Mehrotra, Sr. Adv., ArnavBehera, Ramendra Mohan Patnaik, Ms. Deepti R. Mehrotra, ApoorvSrivastava, Prasenjit K. Chakravarti, Jogy Scaria, Advs. for theAppellants.

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ASibo Sankar Misra, Gaurav Puri, Smarhar Singh, Sarthak Gupta,Ms. Yashika Verma, Advs. for the Respondent.

The Judgment of the Court was delivered by

M. R. SHAH, J.

B1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 23.03.2021 passed by the High Court of Orissa atCuttack in W.P. (C) No.26408 of 2017, by which the High Court hasallowed the said writ petition and has quashed and set aside the orderpassed by the State, banning the respondent herein from participatingor bidding for any work to be undertaken by Government of OdishaCand transacting any business with Government of Odisha, either directlyin the name of propriety bidder or indirectly under any different nameor title, the State of Odisha has preferred the present C.A. No.1083 of2022.

2. Feeling aggrieved and dissatisfied with the subsequentDconsequential order passed by the High Court vide order dated 04.06.2021in W.P. (C) No.16723 of 2021 by which the High Court, in consequenceof the earlier order dated 23.03.2021 passed in W.P. (C) No.26408 of2017, directed the State of Odisha to remove the name of the contractor– respondent herein from the list of blacklisted contractors, the State ofEOdisha has preferred the present C.A. No.1084 of 2022.

3. That the respondent – contractor was awarded a contract forconstruction of a flyover over the railway level crossing at BomikhalJunction in Bhubaneswar. That in pursuance of the said contract therespondent – contractor constructed the said flyover. In the year 2017,Fa ten meter slab of the flyover collapsed during concreting of the railwayover bridge at the level crossing, which resulted in loss of life andproperty. One person died and eleven others were injured. A high-level inquiry was conducted by the Chief Engineer (Design) and ChiefEngineer (DPI and Roads). The committee submitted a comprehensivereport after a detailed inquiry and found the contractor – respondentGherein guilty. It was found that the contractor did not submit theformwork design and adopted his own arrangement leading to collapseof such a huge structure during construction. It was also found thatthe contractor had not ensured adequate safety measures during theperiod of construction; otherwise such an unfortunate fatal accidentcould have been avoided. It was found that the quality assurance hadH

not been maintained as stipulated in the codes and manuals and as perthe agreement. It was found that there were a lot many deficiencies inworkmanship that could affect the quality of work, as found in otherformwork assemblies. Therefore, the committee found the contractorresponsible for such a serious accident.

3.1 On the basis of such report the State Government took thematter very seriously and directed that immediate necessary action betaken for blacklisting the contractor following the procedure as per theOrissa Public Works Department (OPWD) Code. Thereafter, a showcause notice was issued to the contractor and the contractor was askedto show cause as to why it be not blacklisted for intentionally violatingthe relevant clauses of the Agreement No.15-P1/2011-12. The respondentfiled a detailed reply. That on considering the allegations in the said showcause notice and reply thereto, the Chief Engineer (DPI & Roads) Odishaissued an order dated 12.12.2017, whereby the respondent – contractorwas blacklisted with immediate effect, for intentional violation of conditionof the contract leading to injuries and loss of life. The respondent –contractor was banned from participating or bidding for any work to beundertaken by the Government of Odisha and the contractor was alsobanned from transacting business with Government of Odisha, eitherdirectly or indirectly.

3.2 Aggrieved by the order of blacklisting dated 12.12.2017, thecontractor filed Writ Petition (C) No.26408 of 2017 seeking quashing ofthe order of blacklisting and by the impugned judgment and order, theHigh Court has set aside the order of blacklisting mainly on the groundthat the order of blacklisting is in violation of principles of natural justice.The impugned judgment and order passed by the High Court quashingand setting aside the order of blacklisting is the subject matter of CivilAppeal No.1083 of 2022.

3.3 That thereafter the contractor filed another Writ Petition (C)No.16723 of 2021, making a grievance that despite the order of blacklistingset aside by the High Court in Writ Petition (C) No.26408 of 2017, thecontractor’s name continues to be shown as the blacklisted in the officialportal of the Government of Odisha. By the order dated 04.06.2021, theHigh Court has disposed of the said writ petition by directing the State topass appropriate orders to stop showing on the official portal of theGovernment of Odisha the name of the contractor – respondent hereinas a blacklisted company to enable the contractor to seek renewal of its A

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Alicence as well participate in future tenders. The order dated 04.06.2021passed by the High Court in Writ Petition (C) No.16723 of 2021 is thesubject matter of Civil Appeal No.1084 of 2022.

4. Shri Ashok Kumar Parija, learned Advocate General hasappeared on behalf of the State of Odisha and Shri Sibo Sankar Misra,Blearned Advocate has appeared on behalf of the respondent – contractor.

5. Shri Ashok Kumar Parija, learned Advocate General appearingon behalf of the State of Odisha has vehemently submitted that in thefacts and circumstances of the case, the High Court has materially erredin quashing and setting aside the order passed by the State of OdishaCblacklisting the respondent – contractor.

5.1 It is contended that the High Court has erred in holding thatthe order of blacklisting was in violation of the principles of natural justice.

5.2 It is submitted that as such before blacklisting the respondent– contractor a show cause notice was issued and served upon theDrespondent. The procedure as required as far as Appendix-XXXIV ofOPWD Code was followed and thereafter, after considering the replysubmitted by the contractor, the order of blacklisting was passed. It issubmitted that therefore, the High Court has erred in holding that theorder of blacklisting was in breach of principles of natural justice.

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E5.3 It is further submitted by Shri Parija, learned Advocate Generalappearing on behalf of the State that the High Court has also erred inconcluding that the blacklisting order was pre-decided as the same waspassed on the basis of the recommendations made in the inquiry report.It is urged that in fact the findings recorded by the inquiry committeeFcan be said to be the basis for initiating the action of blacklisting againstthe contractor. It is submitted that therefore, the findings recorded bythe inquiry committee can be said to be a prima facie opinion whileinitiating the proceedings for blacklisting. It is submitted that merelybecause show cause notice was issued and the blacklisting order waspassed on consideration of the inquiry report, that by itself it cannot beGsaid that the blacklisting order was pre-decided.

5.4 It is further submitted by Shri Parija, learned Advocate General,appearing on behalf of the State that even otherwise, while passing theimpugned judgment and order quashing and setting aside the blacklistingorder, the High Court has not at all considered the seriousness of theHallegations against the contractor. It is submitted that it was a case of grave lapse and omission and commission on the part of the contractor;a serious incident occurred in which one person died and eleven otherswere injured. It is submitted that therefore, the High Court ought not tohave interfered with the order passed by the State Governmentblacklisting the respondent – contractor

6. The present appeals are vehemently opposed by Shri SiboSankar Misra, learned counsel appearing on behalf of the respondent –contractor.

6.1 It is submitted that in the facts and circumstances of the casethe High Court has rightly observed and held that the order of blacklistingwas pre-determined and the same was in breach of principles of naturaljustice.

6.2 It is submitted that before a show cause notice was issuedto the respondent – contractor, a communication/letter dated 10.10.2017was written by the Under Secretary in the Works Department to theChief Engineer which shows that the Government had already orderedblacklisting of the contractor and the Engineer-in-Chief was directedto take immediate action for blacklisting the contractor. It is submittedthat as rightly observed that the action of blacklisting the contractorwas pre-determined. It is submitted that it is rightly observed by theHigh Court that giving a show cause notice was an empty formalitywhich was not going to change the decision already taken to blacklistthe contractor.

6.3 It is further submitted that even in the show cause noticethere was no reference to the letter dated 10.10.2017 and/or to the reportof the committee.

6.4 It is further submitted that even after the show cause noticecontaining serious allegations of violations by the contractor, the contractorwas asked to execute the balance work, on a revised design, which thecontractor – respondent admittedly completed to the satisfaction of theDepartment by 31.03.2018. It is submitted that therefore, the High Courthas rightly quashed the order of blacklisting the respondent – contractor.

6.5 In the alternative, it is contended by learned counsel appearingon behalf of the respondent – contractor that in the facts and circumstancesof the case, the order of blacklisting the respondent – contractorpermanently can be said to be too harsh and/or disproportionate to thecharge/misconduct proved against the respondent – contractor.

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A6.6 It is urged that it was the first offence by the respondent –contractor. That after the impugned order passed by the Government,the Government of Odisha, Works Department passed an officememorandum dated 26.11.2021, which provides that the blacklisting periodper offence shall be limited to three years subject to an overall maximumcumulative period of ten years for multiple offences. It is submitted thatBthe respondent has completed a period of 4 ½ years of its blacklisting. Itis submitted that therefore the order of blacklisting respondent –contractor permanently also deserves to be quashed and set aside.

6.7 Making the above submissions and relying on the decisions ofthis Court in the cases of Erusian Equipment & Chemicals Ltd. Vs.CState of West Bengal and Anr. (1975) 1 SCC 70, Kulja IndustriesLimited Vs. Chief General Manager, Western Telecom ProjectBharat Sanchar Nigam Limited and Ors. (2014) 14 SCC 731 andM/s. Daffodills Pharmaceuticals Ltd. & Anr. Vs. State of U.P. &Anr. 2019 (17) Scale 758, it is prayed to dismiss the present appealsDand/or in the alternative to reduce the period of blacklisting.

7. We have heard learned counsel appearing on behalf of therespective parties at length.

8. By the impugned judgment and order, the High Court has setaside the order passed by the Government of Odisha blacklisting theErespondent contractor mainly on the ground that the same was pre-determined and in breach of principles of natural justice.

8.1 However, it is required to be noted that the action of blacklistingfollowed a high-level inquiry conducted by two members committee,Chief Engineer (Designs) and Chief Engineer (DPI & Roads). AfterFstudying the contract provisions and drawings, as also inquiry on thespot and after a detailed consideration of the general behaviour andcollapse of the formwork, a comprehensive report was submitted andthe following observations were made in respect of the respondent –contractor: -G“(b) In respect of the Contractor

(i) The Contractor has not submitted the formwork design andhas adopted his own arrangement leading to suchoccurrence of collapse of such huge structure duringconstruction. Design of the formwork is the responsibilityHof the Contractor and the Contractor shall also be entirely responsible for adequacy and safety of formwork,notwithstanding any approval or review of drawing anddesign by the Engineer.

(ii) The Contractor has not ensured adequate safety measuresduring construction activities with which such unfortunatefatal accident could have been avoided, even in case offailure.

(iii) Quality assurance has not been emphasized as stipulated inthe codes and manuals and as per the Agreement.

(iv) There are lot many deficiencies in workmanship that mayaffect the quality of work, as found in other formworkassemblies.”

8.2 Thereafter, the State Government studied the report submittedby a high-level committee and having considered the case of lapse onthe part of the contractor, a serious incident had taken place of collapseof a ten meter slab and in the said incident, one person died and elevenothers were injured. Hence, a decision was taken to blacklist thecontractor after following the proceedings as per the OPWD Code.Thereafter, a show cause notice was issued upon the respondent –contractor and the respondent – contractor was called upon to showcause as to why he be not blacklisted. The said show cause notice wasissued in terms of the provisions and the procedures in the OPWD Code.The respondent – contractor replied to the same. After considering theallegations in the show cause notice and the reply submitted by thecontractor, thereafter the Government passed an order of blacklisting.Merely because the show cause notice was issued after the inquirycommittee report was considered and thereafter the State Governmenttook the decision to initiate proceedings for blacklisting, that by itself itcannot be said that the order of blacklisting was pre-determined asobserved by the High Court. The communication dated 10.10.2017 bythe State Government to the Chief Engineer can be said to be a proposeddecision to initiate the proceedings for blacklisting. In the communicationdated 10.10.2017, it has been specifically mentioned that the action betaken for blacklisting after following the procedure as per the OPWDCode. Before any show cause notice is issued for any action when atentative decision is taken, it cannot be said that subsequent decisionfollowed by a show cause notice and the proceedings as per the OPWDCode can be said to be pre-determined. Before initiation of any A

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Aproceedings for blacklisting, there can be a tentative decision on thebasis of the material available forming a tentative/prima facie opinionthat action is required. In the instant case a committee submitted a detailedreport which was the basis for issuance of the show cause notice to therespondent. The action initiated against the respondent was not in avacuum but after considering the committee’s report and after followingBthe due procedure as required. Therefore, the High Court has erred inholding that the blacklisting order was pre-determined.

8.3 So far as the findings recorded by the High Court that theblacklisting order was in breach of principles of natural justice isconcerned, it is to be noted that the blacklisting order was passed afterCissuing a show cause notice to which the contractor – respondent wascalled upon to reply and show cause as to why he be not blacklisted. Adetailed show cause notice was issued with specific allegations to whichthe respondent – contractor submitted a detailed reply. After consideringthe allegations in the show cause notice, considering the reply and alsoDby considering the material available on record the order of blacklistingwas passed. We fail to appreciate, how in such a case the blacklistingorder can be said to be in breach of principles of natural justice.

8.4 In the case of Grosons Pharmaceuticals (P) Ltd. & Anr.v. State of U.P., (2001) 8 SCC 604, the order of blacklisting wasEchallenged by the contractor on the ground that the contractor was notsupplied with all the materials on the basis of which charges against himwere based. It was the case on behalf of the contractor that non-supplyof such material resulted in violation of principles of natural justice. Tothat, this Court observed that it was sufficient requirement of law thatan opportunity of show cause was given to the appellant before it wasFblacklisted. This Court observed that the contractor was given anopportunity to show cause and it did reply to the show-cause to the StateGovernment and therefore the procedure adopted by the Governmentwhile blacklisting the contractor was in conformity with the principles ofnatural justice.G8.5

8.5 In the present case as observed hereinabove, show causenotice was issued upon the contractor by which the contractor was calledupon to show cause why he be not blacklisted; the show cause noticewas replied to by the contractor and thereafter, after considering thematerial on record and the reply submitted by the contractor and havingHfound the serious lapses which led to a serious incident in which one person died and eleven others were injured, the State Government tooka conscious decision to blacklist the contractor. Therefore, it cannot besaid the order blacklisting the contractor was in violation of principles ofnatural justice.

8.6 As observed by this Court in the case of Gorkha SecurityServices v. Govt. (NCT of Delhi) & Ors., (2014) 9 SCC 105, thefundamental purpose behind the serving of a show-cause notice is tomake the noticee understand the precise case set up against him whichhe has to meet. This would require the statement of imputations detailingout the alleged breaches and defaults he has committed, so that he getsan opportunity to rebut the same. Another requirement is the nature ofaction which is proposed to be taken for such a breach.

8.7 As per the law laid down by this Court in a catena of decisions“debarment” is recognised and often used as an effective method fordisciplining deviant suppliers/contractors who may have committed actsof omission and commission. It is for the State or appropriate authorityto pass an order of blacklisting/debarment in the facts and circumstancesof the case. Therefore, the High Court has erred and has exceeded itsjurisdiction in exercise of powers under Article 226 of the Constitutionof India by quashing and setting aside the blacklisting order, that too,without adverting to the serious allegations and the act of omission andcommission on the part of the contractor which led to a serious incidentof collapse of ten meter slab while concrete work of the deck was goingon and due to which one person died and eleven others were injured. Itwas specifically found that the safety arrangements were lacking severelyin the construction work zone. It was also found that quality assurancewas not emphasised as stipulated in the codes and manuals and as perthe Agreement. Therefore, the High Court ought to have considered theseriousness of the incident in which due to omission and commission onthe part of the contractor in constructing the flyover one person died andeleven others were injured.

9. The next question which is posed for consideration of this Courtis, whether, in the facts and circumstances of the case the contractorwas required to be debarred/blacklisted permanently?

9.1 In the case of Kulja Industries Limited (supra), this Courthas observed that “debarment” is never permanent and the period ofdebarment would invariably depend upon the nature of the offencecommitted by the erring contractor.

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AIn the said decision this Court emphasised on prescribing guidelinesby determining the period for which the blacklisting should be effective.It is observed and held by this Court that while determining the periodfor which the blacklisting should be effective, for the sake of objectivityand transparency it is required to formulate broad guidelines to befollowed. It is further observed that different periods of debarmentBdepending upon the gravity of the offences, violations and breaches maybe prescribed by such guidelines. In the present case, after the order ofblacklisting was passed, the State Government has formulated guidelinesby O.M. dated 26.11.2021 which provides as under:- A

“The blacklisting period per offence shall be limited to 03 (Three)Cyears subject to an overall maximum cumulative period of 10 (Ten)years for multiple offences”

However, we may observe that we do not approve of the guidelinesissued by the State Government by O.M. dated 26.11.2021. Duration ofblacklisting cannot be solely per offence. Seriousness of the lapse andDthe incident and/or gravity of commission and omission on the part of thecontractor which led to the incident should be the relevant considerations.In a given case, it may happen that the commission and omission is verygrave and because of the serious lapse and/or negligence, a major incidentwould have taken place. In such a case, it may be the contractor’s firstEoffence, in such a case, the period/duration of the blacklisting/banningcan be more than three years. However, as the said guidelines are notunder challenge, we rest the matter there and leave it to the StateGovernment to suitably amend and/or modify the said officememorandum. However, what we have observed above can be a guidewhile determining the period of debarment/blacklisting.F

In the instant case, it might be true that the offence was the firstoffence committed by the contractor. However, considering theseriousness of the matter that due to the omission and commission onthe part of the contractor a serious incident had occurred as there was acollapse of a ten meter slab while constructing a flyover in which oneGperson died and eleven others injured, as such the contractor does notdeserve any leniency. However, to debar him permanently can be saidto be too harsh a punishment. But considering the subsequent O.M.dated 26.11.2021 reproduced hereinabove (to which as such we do notagree as observed hereinabove), we are of the opinion that if theHblacklisting is restricted to five years, it may be in the fitness of things.

STATE OF ODISHA & ORS. v. M/S PANDA INFRAPROJECT LTD.[M. R. SHAH, J.]

10. In view of the above discussion and for the reasons statedabove, present appeal, i.e., C. A.No. 1083 of 2022 is allowed in part.The impugned judgment and order passed by the High Court quashingand setting aside the order dated 12.12.2017 blacklisting the respondentherein – contractor is hereby quashed and set aside. However, the periodof blacklisting is ordered to be restricted to five years from the date ofpassing of the order of blacklisting. Civil Appeal No.1083 of 2022 isallowed to the aforesaid extent.

In view of the order passed in Civil Appeal No.1083 of 2022, CivilAppeal No.1084 of 2022 stands dismissed. In the facts and circumstancesof the case, there shall be no order as to costs.

Devika Gujral

Appeals disposed of.

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