"A Contractor's Fight Against Unfair Blacklisting: The Ekta Enterprises Case"

 


Introduction

The case of M/s Ekta Enterprises v. The State of Bihar (CWJC No. 21293 of 2021) revolves around a dispute between a private contractor and the Bihar government's Public Health Engineering Department (PHED). The contractor, M/s Ekta Enterprises, challenged its indefinite debarment from government contracts, arguing that it was unfair and disproportionate. This case, heard in the Patna High Court, highlights issues related to bureaucratic decisions, contractual obligations, and the consequences of blacklisting businesses.

Background of the Case

Ekta Enterprises, a proprietorship firm led by Om Prakash Narayan, was awarded a contract by the PHED, West Champaran, for the execution of 13 projects under the Single Gram Panchayat/Habitation Piped Water Supply Schemes (SGS/SHS). The contract was valued at approximately ₹4.41 crore. The project required Ekta Enterprises to complete its work within 11 months.

However, the execution of the project faced several obstacles:

  1. The initial work site allocated was found to be waterlogged and unsuitable for tube-well boring. This issue was reported to the department.

  2. The department took four months to identify and approve an alternative site.

  3. Shortly after, the COVID-19 pandemic and subsequent national lockdown (March 2020 to May 2020) caused further delays.

  4. The contractor sought an extension due to these delays, but the department delayed granting it.

  5. The extension was finally granted on February 17, 2021, but only for 33 days, which the petitioner deemed unreasonable.

  6. Due to these compounded delays, the department terminated the contract and debarred Ekta Enterprises indefinitely from participating in any government contracts.

Petitioner’s Argument

Ekta Enterprises, represented by Senior Advocate P.N. Shahi, challenged the debarment decision, arguing that:

  • The indefinite nature of the debarment was against legal principles.

  • The delays in project execution were not solely the contractor’s fault but were significantly due to administrative and unforeseen circumstances.

  • The department’s decision to extend the project later (albeit with a penalty of ₹44.19 lakh) contradicted the justification for a complete and indefinite debarment.

  • About 90% of the project work was already completed, and the department had made payments for the same, indicating that the work was progressing satisfactorily.

The petitioner requested the court to:

  • Quash the indefinite debarment order.

  • Direct the department to reassess its decision and provide a reasonable opportunity to the contractor.

  • Allow an extension without imposing liquidated damages since the delays were due to factors beyond the contractor’s control.

Respondent’s Stand

The Bihar government, represented by advocate Upendra Pratap Singh, defended its decision, arguing that:

  • The contractor failed to complete the project within the stipulated timeline.

  • Delays in government projects lead to public inconvenience and financial loss.

  • Debarment was a necessary measure to enforce accountability and efficiency in government contracts.

  • The extension with liquidated damages was a fair decision in light of project delays.

Court’s Observations

The Patna High Court, led by Justice Ashutosh Kumar and Justice Nawneet Kumar Pandey, examined the arguments and concluded that:

  • Indefinite debarment is akin to blacklisting, which has severe repercussions on a contractor’s ability to conduct business.

  • The petitioner was not given a fair opportunity to explain the delays before debarment.

  • The government itself extended the project timeline, which suggested that the contractor was not entirely at fault.

  • The COVID-19 lockdown and initial site unsuitability were valid reasons for the delay.

The court cited Supreme Court judgments (Kulja Industries Ltd. v. Chief General Manager BSNL and Vetindia Pharmaceuticals Ltd. v. State of Uttar Pradesh), emphasizing that indefinite debarment is legally unjustified.

Judgment and Conclusion

The High Court ruled in favor of Ekta Enterprises, setting aside the indefinite debarment. However, it did not interfere with the department’s conditional extension with liquidated damages, leaving it to the contractor’s discretion to accept or contest it separately. The department was directed to reassess the situation within 30 days and reconsider allowing an extension without penalties.

This case highlights the importance of procedural fairness in government contracting and the necessity for balanced decision-making that considers external factors affecting project execution.

Read the full judgement Below;

https://patnahighcourt.gov.in/viewjudgment/MTUjMjEyOTMjMjAyMSMxI04=-Q0mrBSvDf1A=