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PETITIONER: ERUSIAN EQUIPMENT & CHEMICALS LTD.

       Vs.

RESPONDENT: STATE OF WEST BENGAL & ANR.

DATE OF JUDGMENT11/11/1974

BENCH: RAY, A.N. (CJ) BENCH: 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

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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

JUDGMENT: 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

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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   misdeclaration  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

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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  inter- nal 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 black- listing  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  black- listing, 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 black- listing.  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

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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 any one 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

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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  peti- tioner 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. 680