Case Note & Summary
The Supreme Court considered two writ petitions under Article 32 of the Constitution and one civil appeal from the Bombay High Court. The common question was whether a person put on the black list by the State Government is entitled to notice and an opportunity to be heard before the name is put on the black list. The petitioners in the writ petitions were engaged in the business of purchase and export of Cinchona products. They had entered into contracts with the State of West Bengal for purchase of Cinchona during 1966 to 1971. Their tenders submitted on 15 February 1973 and 4 December 1973 were rejected despite being highest. The State alleged that the petitioners were guilty of misdeclaration of goods in export transactions, based on a secret letter from the Collector of Customs, Calcutta. The Sales Committee of the State resolved on 21 January 1971 not to deal with the firm until cleared of charges. The respondent in the civil appeal had been on the approved list of the Director General, Supplies and Disposals since 1942. After reports of shortage of timber, Special Police Establishment seized account books in August 1964. On 4 December 1965, the department blacklisted the respondent without prior notice. The respondent filed a writ petition in the Bombay High Court, which was allowed on 12 January 1973, setting aside the blacklisting order. The State's appeal was dismissed by the High Court on 15 September 1973, leading to the civil appeal before the Supreme Court. The State argued that sales were contractual and no one has a right to compel the Government to enter into a contract; blacklisting was an internal and confidential step; rights under Articles 14, 19 and 21 did not compel the Government to negotiate or contract. The petitioners and respondent argued discrimination, lack of fair play, and violation of natural justice. The Court held that under Article 298, the executive power of the Union and State extends to carrying on trade, but such exercise is subject to Part III of the Constitution. Article 14 ensures equality and absence of arbitrariness in transactions involving public element. 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. Blacklisting has the effect of preventing a person from entering into lawful relationship with the Government for gain and tarnishes reputation. A person who has been dealing with the Government has a legitimate interest or expectation. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before being blacklisted. The Court did not require an oral hearing in all cases, but held that the duty to act fairly depends on the nature of the interest affected and circumstances. The Court thus ruled that blacklisting without prior notice and opportunity to show cause is arbitrary and violative of Article 14. The final direction was that the persons blacklisted were entitled to be heard before any blacklisting order is made.
Headnote
A) Constitutional Law - Equality and Non-Discrimination - Article 14, Constitution of India, 1950 - State must act fairly and without arbitrariness in contractual dealings - State's trade must comply with Part III; no right to contract but if State enters contracts, must not discriminate unfairly - Held that equality applies to matters of public contracts and State must act fairly without discrimination and without unfair procedure (Paras 677C-E, G; 678D-E). B) Administrative Law - Natural Justice - Fair Hearing Before Blacklisting - Constitution of India, 1950, Article 14 - Blacklisting affects reputation and legitimate expectation; opportunity to show cause required before blacklisting - Held that fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the black list (Paras 678EF; 679B-C). C) Constitutional Law - Arbitrariness in State Action - Article 14, Constitution of India, 1950 - Exclusion of highest bidder or lowest tenderer can be arbitrary; reasonable conditions allowed - State can reject bids but must not discriminate - Held that exclusion of a person who offers the highest price from participating in a public auction would have the same aspect of arbitrariness (Paras 678F-G). D) Administrative Law - Duty to Act Fairly - Scope of Hearing - Constitution of India, 1950, Article 14 - Opportunity to represent may not require oral hearing or disclosure of all information; depends on nature of interest and sanctions - Held that duty to act fairly can be sustained without providing opportunity for an oral hearing, depending upon the nature of the interest affected and circumstances (Paras 678H-679B).
Issue of Consideration
Whether a person put on black list by State Government is entitled to notice and hearing before blacklisting; whether rejection of tenders without opportunity violates Article 14 of the Constitution of India, 1950
Final Decision
The Supreme Court held that blacklisting by State without prior notice and opportunity to show cause is arbitrary and violative of Article 14 of the Constitution. The State must give fair hearing before putting a person on black list. The writ petitions were allowed and the appeal by State was dismissed, affirming the Bombay High Court's order setting aside the blacklisting.
Law Points
- Equality of opportunity applies to matters of public contracts
- State must act fairly
- without discrimination and without unfair procedure
- blacklisting tarnishes reputation and requires opportunity to show cause
- duty to act fairly may not always require oral hearing
- State can impose reasonable conditions on bidders
- exclusion of highest bidder from public auction can be arbitrary
