Simplified Explanation of the Judgment
In a notable judgment, the Patna High Court intervened in a matter involving cancellation of a government work contract and the consequential blacklisting of contractors. The Court ruled that blacklisting and rescission of contract must follow due process, including specific notices and proper authority action.
The case was filed by several contractors who had entered into agreements with the Local Area Engineering Organization under the Water Resources Department, Government of Bihar, for installing hand pump borings in various regions of Samastipur. These agreements were later rescinded by the Executive Engineer, citing non-completion of work within the original or extended deadlines. Along with rescinding the agreements, the Executive Engineer also ordered forfeiture of security deposits and recommended blacklisting of the contractors.
The petitioners contended that they had performed substantial work and submitted bills for payment. However, due to non-payment by the department, they could not proceed further. They argued that the authority was using its own failure (non-payment) to penalize them by rescinding the agreements and initiating blacklisting. They also claimed that there was no provision in the contract mandating payment only after full completion of work.
The primary grievance was that the Executive Engineer, who was a party to the contract, had unilaterally cancelled the agreements and took punitive actions without issuing specific notices for blacklisting. Annexure-3, the government’s communication listing terminated contracts, lacked detailed reasons for each termination and did not mention the duration or extent of the proposed blacklisting.
The High Court found merit in the petitioners’ claim. It ruled that:
- The Executive Engineer could not independently act against the contractor, especially when being a party to the contract.
- There was no evidence of proper application of mind in issuing Annexure-3, as it lacked itemized reasons and failed to provide specific grounds for each contractor.
- No separate or specific notice of blacklisting was issued, nor was any opportunity given to the contractors to respond to such a serious consequence.
On these grounds, the Court set aside Annexure-3, effectively quashing the contract cancellations and blacklisting. However, it granted liberty to the appropriate authority to re-examine the matter and decide afresh, after following due procedure.
The Court directed that if the department still intends to act on these issues, they must:
- First determine whether the Executive Engineer had the legal authority to terminate the agreements.
- Then issue a fresh, detailed notice with reasons for any further action.
- Consider the contractors’ explanations before taking any punitive step.
All these actions must be completed within four months from the receipt of the Court’s order.
Significance or Implication of the Judgment
This ruling is significant for contractors and agencies working on public projects. It affirms that procedural fairness is vital before any punitive action, such as blacklisting or contract cancellation, is undertaken by a government authority.
The decision ensures that no government officer can arbitrarily penalize contractors without giving them a chance to present their side. Blacklisting has serious repercussions, effectively barring entities from future tenders and government work. Therefore, the Court’s insistence on prior notice and proper authority review strengthens the rights of contractors against bureaucratic overreach.
For government departments, this judgment acts as a reminder to follow statutory procedures, especially in sensitive decisions that affect future business prospects and reputations of individuals or firms.
Legal Issue(s) Decided and the Court’s Decision with Reasoning
- Can an Executive Engineer unilaterally cancel contracts and recommend blacklisting?
- Decision: No.
- Reasoning: Being a party to the contract, the Executive Engineer cannot initiate punitive action without referring the matter to the competent authority.
- Was the blacklisting valid when no specific notice was issued to the contractors?
- Decision: No.
- Reasoning: The absence of individual notices and reasons for blacklisting violates the principles of natural justice.
- Can a composite administrative memo cancel contracts and impose penalties without assigning detailed reasons?
- Decision: No.
- Reasoning: The impugned memo (Annexure-3) suffered from non-application of mind and failed to specify reasons for each action, making it invalid.
- What remedy was given to the government department?
- Decision: The Court allowed the department to re-examine the matter afresh, following due process within four months
Case Title
Ram Japan Sahani & Ors. v. The State of Bihar & Ors.
Case Number
CWJC No. 15056 of 2016
Coram and Names of Judges
Hon’ble Mr. Justice P. B. Bajanthri
Hon’ble Mr. Justice Arun Kumar Jha
Names of Advocates and who they appeared for
- Ms. Kumari Rashmi, Mr. Suresh Pd. Singh (No. 1) – for the petitioners
- Mr. Anjani Kumar (AAG-4), Mr. Deepak Sahay Jamuar (AC to AAG-4) – for the respondents
Link to Judgment
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