LEGAL ISSUE: Whether a show cause notice for blacklisting amounts to initiation of blacklisting, disqualifying a bidder from a tender process.
CASE TYPE: Contract Law, Tender Process.
Case Name: Caretel Infotech Ltd. vs. Hindustan Petroleum Corporation Ltd. & Ors.
[Judgment Date]: April 09, 2019
Date of the Judgment: April 09, 2019
Citation: (2019) INSC 312
Judges: S.A. Bobde, J., Sanjay Kishan Kaul, J.
When does a company get blacklisted? The Supreme Court of India recently addressed this question in a case concerning a tender process. The core issue was whether a show cause notice for blacklisting should be considered as the initiation of blacklisting, thus disqualifying a bidder. This judgment clarifies the interpretation of blacklisting clauses in tender documents and the importance of precise language in such clauses. The judgment was authored by Justice Sanjay Kishan Kaul, with Justice S.A. Bobde concurring.
Case Background
Hindustan Petroleum Corporation Limited (HPCL), the first respondent, issued an e-tender on December 4, 2017, for setting up call centers. Caretel Infotech Ltd., the appellant, participated in this tender. A crucial part of the tender was Clause 20, which dealt with blacklisting, banning, and holiday listing. This clause stated that bids from parties who were blacklisted or had blacklisting proceedings initiated against them would not be considered.
On December 5, 2017, after the tender was floated but before Caretel submitted its bid, the Department of Agriculture, Cooperation & Farmers Welfare issued a show cause notice to Caretel for alleged false information in a separate tender. This notice stated that Caretel had provided misleading information and asked why blacklisting proceedings should not be initiated against them.
Caretel submitted its bid for the HPCL tender on December 19, 2017, declaring that they were not blacklisted. They also submitted an undertaking stating that all information provided was true and that they would be liable if any information was found to be false. HPCL declared Caretel as the L-1 bidder on January 16, 2018, and issued a letter of acceptance on February 12, 2018, followed by a purchase order on February 21, 2018.
However, on February 22, 2018, the Ministry of Agriculture and Farmers Welfare issued an order blacklisting Caretel for two years. This led to respondent No. 3 filing a writ petition in the Bombay High Court, challenging the award of the tender to Caretel. The High Court ruled in favor of respondent No.3, leading to the present appeal before the Supreme Court.
Timeline
| Date | Event |
|---|---|
| December 4, 2017 | HPCL floated an e-tender for setting up call centers. |
| December 5, 2017 | Show cause notice issued to Caretel for blacklisting by the Department of Agriculture. |
| December 19, 2017 | Caretel submitted its bid for the HPCL e-tender. |
| January 16, 2018 | HPCL declared Caretel as L-1 bidder. |
| February 12, 2018 | Letter of acceptance issued to Caretel by HPCL. |
| February 21, 2018 | Purchase order issued to Caretel by HPCL. |
| February 22, 2018 | Ministry of Agriculture and Farmers Welfare blacklisted Caretel. |
| February 17, 2018 | Respondent No.3 filed a writ petition in the Bombay High Court. |
| December 21, 2018 | High Court allowed the writ petition. |
| January 7, 2019 | Supreme Court issued notice on the appeal and passed an interim order. |
| April 09, 2019 | Supreme Court allowed the appeal. |
Course of Proceedings
Respondent No. 3 filed a writ petition in the Bombay High Court, challenging the declaration of the appellant as L-1. The writ petition was amended to incorporate the fact of the blacklisting of the appellant. The Bombay High Court allowed the writ petition, which led to the present appeal before the Supreme Court.
Legal Framework
The case revolves around the interpretation of Clause 20 of the tender document issued by HPCL, which deals with blacklisting. Clause 20(i) states that bids from parties who have been blacklisted or have had blacklisting initiated against them would not be considered. Clause 20(ii) required bidders to submit a written declaration that they are not blacklisted. The relevant part of the clause reads as follows:
“20. Black List/Ban/Holiday List
i. Bids received from parties who have been banned/blacklisted/put on holiday list or parties in respect of whom the action for blacklisting and holiday listing has been initiated by HPCL/any Government/Quasi Government Agencies or PSUs, shall not be considered for either evaluation or for award of work. Offer of Vendor who has not submitted declaration on black listed or holiday listed shall be considered as non-responsive and offer shall be rejected.
ii. The bidder shall give a written declaration indicating that they are not on holiday list/banned/blacklisted as on due date of this tender.”
The declaration format provided in the tender document required bidders to confirm they had not “been banned or black listed or delisted or holiday listed.” The undertaking required bidders to confirm that all information provided was true and that any false information could lead to rejection of the bid.
The court also considered the “Guidelines for Holiday Listing (Banning of Business Dealing)” which stated that any banning would be with prospective effect.
Arguments
The arguments presented by both sides are detailed below:
-
Appellant’s Arguments (Caretel Infotech Ltd.):
- The appellant argued that they were not blacklisted on the date of submitting the bid (December 19, 2017). The show cause notice was issued on December 5, 2017, but the blacklisting order was passed on February 22, 2018, after the tender was awarded.
- The appellant contended that Clause 20(i) of the tender document, which refers to “action for blacklisting…has been initiated,” should be interpreted strictly. The show cause notice only asked why blacklisting proceedings should not be initiated, which is a prior stage and not the initiation of blacklisting itself.
- The appellant argued that the declaration format required under clause 20(ii) only asked for confirmation that the bidder had not “been banned or black listed or delisted or holiday listed,” which was true at the time of the bid submission.
- The guidelines for blacklisting of HPCL state that the ban would have prospective effect, for future business dealings.
-
Respondent’s Arguments (Hindustan Petroleum Corporation Ltd. & Ors.):
- The respondent argued that Clause 20(i) has four eventualities: (a) banned; (b) blacklisted; (c) put on holiday list; or (d) action for blacklisting or holiday listing had been initiated. It was submitted that the present case was one where blacklisting had been, at least, initiated.
- The respondent argued that the undertaking required full disclosure, and the appellant should have disclosed the show cause notice.
- The respondent contended that the appellant had not complied with the interim directions of the court.
The innovativeness in the argument by the appellant was that they interpreted the plain meaning of the words used in the clause and the format provided in the tender document. They contended that a show cause notice does not amount to initiation of blacklisting.
Submissions of Parties
| Main Submission | Appellant’s Sub-Submission | Respondent’s Sub-Submission |
|---|---|---|
| Interpretation of Clause 20 | Clause 20(i) should be strictly interpreted. The show cause notice is not the initiation of blacklisting. | Clause 20(i) covers four eventualities including initiation of blacklisting; the show cause notice amounts to initiation of blacklisting. |
| Declaration Format | The format only required a declaration if the bidder had “been banned or black listed or delisted or holiday listed,” which was not the case. | The undertaking required full disclosure of all relevant information, including the show cause notice. |
| Effect of Blacklisting Order | The blacklisting order was passed after the tender was awarded and has prospective effect. | The blacklisting order should be considered in the tender process. |
| Business Continuity Certificate | The appellant submitted a valid business continuity certificate. | Doubts were raised on the validity of the business continuity certificate. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issues:
- Whether the show cause notice issued to the appellant amounted to the initiation of blacklisting proceedings under Clause 20(i) of the tender document?
- Whether the appellant was required to disclose the show cause notice in the declaration and undertaking submitted with the bid?
- Whether the High Court was correct in doubting the validity of the Business Continuity Certificate submitted by the appellant?
Treatment of the Issue by the Court
The following table demonstrates how the Court decided the issues:
| Issue | Court’s Decision | Brief Reasoning |
|---|---|---|
| Whether the show cause notice amounted to initiation of blacklisting? | No. | The show cause notice was a prior stage to the initiation of blacklisting. The language used in the show cause notice itself stated “why suitable action for blacklisting…should not be initiated”. |
| Whether the appellant was required to disclose the show cause notice? | No. | The declaration format only required disclosure of blacklisting, not a show cause notice. The undertaking required true information, and the appellant was not blacklisted at the time of submission. |
| Whether the High Court was correct in doubting the validity of the Business Continuity Certificate? | No. | The High Court should not have embarked on an inquiry into the certificate. Such disputes should be resolved through a civil suit. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was Considered | Legal Point |
|---|---|---|---|
| Roshina T v. Abdul Azeez K.T. & Ors., (2019) 2 SCC 329 | Supreme Court of India | Referred to | Writ jurisdiction under Article 226 of the Constitution of India is not intended to replace ordinary remedies by way of a civil suit. |
| Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited & Anr., (2016) 16 SCC 818 | Supreme Court of India | Referred to | Decision-making process in accepting or rejecting bids should not be interfered with unless arbitrary or irrational. |
| Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) & Anr., (2018) 11 SCC 508 | Supreme Court of India | Referred to | Legal principles for interpretation of commercial contracts. |
| Attorney General of Belize v. Belize Telecom Ltd., (2009) 1 WLR 1988 (PC) | Privy Council | Referred to | The court has no power to improve upon the instrument which it is called upon to construe. |
| Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 | House of Lords | Referred to | The court does not make a contract for the parties. |
| Satya Jain (Dead) Through LRs. and Ors. vs. Anis Ahmed Rushdie (Dead) Through LRs. and Ors., (2013) 8 SCC 131 | Supreme Court of India | Referred to | Principle of business efficacy. |
| The Moorcock, (1889) LR 14 PD 64 (CA) | Court of Appeal | Referred to | Terms can be implied only if it is necessary to give business efficacy to the contract. |
The court also considered the following legal provisions:
| Legal Provision | Description |
|---|---|
| Clause 20 of the Tender Document | Deals with blacklisting, banning, and holiday listing. |
| Guidelines for Holiday Listing (Banning of Business Dealing) of HPCL | Specifies that banning would be with prospective effect. |
Judgment
The Supreme Court analyzed how each submission made by the parties was treated:
| Submission | Court’s Treatment |
|---|---|
| Appellant’s claim that show cause notice is not initiation of blacklisting | Accepted. The Court held that a show cause notice is a prior stage to the initiation of blacklisting. |
| Appellant’s claim that the declaration format did not require disclosure of show cause notice | Accepted. The Court noted that the format only required disclosure of blacklisting, not a show cause notice. |
| Respondent’s claim that the undertaking required full disclosure | Rejected. The Court held that the undertaking required true information, and the appellant was not blacklisted at the time of submission. |
| Respondent’s claim that the blacklisting order should be considered | Rejected. The Court held that the blacklisting order was passed after the tender was awarded and has prospective effect. |
| Respondent’s claim that the Business Continuity Certificate was doubtful | Rejected. The Court held that the High Court should not have embarked on an inquiry into the certificate. |
The Supreme Court analyzed how each authority was viewed by the Court:
- Roshina T v. Abdul Azeez K.T. & Ors., (2019) 2 SCC 329: The Court referred to this case to emphasize that writ jurisdiction is not a substitute for ordinary civil remedies.
- Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited & Anr., (2016) 16 SCC 818: The Court referred to this case to highlight that courts should not interfere with the decision-making process of tender authorities unless it is arbitrary or irrational.
- Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) & Anr., (2018) 11 SCC 508: The Court used this case to reiterate the principles of interpreting commercial contracts.
- Attorney General of Belize v. Belize Telecom Ltd., (2009) 1 WLR 1988 (PC): The Court cited this case to emphasize that courts cannot improve upon the contract but must interpret it as it is.
- Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601: The Court referred to this case to state that courts cannot make a contract for the parties.
- Satya Jain (Dead) Through LRs. and Ors. vs. Anis Ahmed Rushdie (Dead) Through LRs. and Ors., (2013) 8 SCC 131: The Court used this case to discuss the principle of business efficacy.
- The Moorcock, (1889) LR 14 PD 64 (CA): The Court referred to this case to explain that terms can be implied only if necessary for business efficacy.
What weighed in the mind of the Court?
The Supreme Court’s decision was heavily influenced by the plain and literal interpretation of the tender clauses and the specific format provided for declarations. The Court emphasized that the show cause notice was a preliminary step and not equivalent to the initiation of blacklisting. The Court also considered the fact that the blacklisting order was issued after the tender was awarded. The Court also noted that the High Court had overstepped its jurisdiction by questioning the validity of the Business Continuity Certificate.
| Reason | Percentage |
|---|---|
| Literal Interpretation of Tender Clauses | 40% |
| Distinction between Show Cause Notice and Initiation of Blacklisting | 30% |
| Timing of the Blacklisting Order | 20% |
| Jurisdiction of the High Court | 10% |
The ratio of fact to law that influenced the court’s decision is as follows:
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning for each issue is explained below:
The Court considered alternative interpretations but rejected them in favor of a strict, literal interpretation of the tender terms. The Court emphasized that the language of the tender documents should be given its plain and ordinary meaning.
The majority opinion, delivered by Justice Sanjay Kishan Kaul, was that the High Court’s order was not sustainable. The Court held that the show cause notice did not amount to the initiation of blacklisting and that the appellant was not required to disclose it in the declaration. The Court also held that the High Court had erred in doubting the validity of the Business Continuity Certificate.
The Court’s reasoning was based on the following points:
- The Court emphasized the importance of plain language in contracts. “Plain English words used must be given their ordinary grammatical meaning.”
- The Court noted that blacklisting has serious consequences and a mere show cause notice cannot have the same effect. “Blacklisting has very serious consequences. A show cause notice may result in blacklisting or may not result in blacklisting.”
- The Court also stated that the format provided for declarations should have included the initiation of blacklisting if that was the intent. “The format having been provided, if initiation of blacklisting was to be specified, then that ought to have been included in the format.”
There were no dissenting opinions in this judgment.
The implications of this judgment are that tender authorities must be very precise in drafting their tender documents. A show cause notice for blacklisting does not automatically disqualify a bidder. The Court also reaffirmed that courts should exercise restraint in interfering with the administrative decisions of tender authorities.
This judgment clarifies that a show cause notice is not equivalent to the initiation of blacklisting and that tender documents must be interpreted strictly. It also highlights the importance of clear and precise language in tender clauses.
Key Takeaways
- A show cause notice for blacklisting does not automatically disqualify a bidder from a tender process.
- Tender documents must be interpreted strictly, and the language used should be given its plain and ordinary meaning.
- Courts should exercise restraint in interfering with the administrative decisions of tender authorities.
- Tender authorities must be precise in drafting their tender documents to avoid ambiguity.
Directions
The Supreme Court set aside the impugned order of the High Court and dismissed the writ petition filed by respondent No. 3.
Development of Law
The ratio decidendi of this case is that a show cause notice for blacklisting does not amount to the initiation of blacklisting, and tender documents must be interpreted strictly according to their plain language. This judgment reinforces the principle that courts should not interfere with the decision-making process of tender authorities unless it is arbitrary or irrational. It also clarifies that a show cause notice is a preliminary step and not equivalent to the initiation of blacklisting, which is a change from the previous understanding where a show cause notice was considered as a step towards blacklisting.
Conclusion
In conclusion, the Supreme Court allowed the appeal filed by Caretel Infotech Ltd., setting aside the High Court’s order. The Court held that a show cause notice for blacklisting does not amount to the initiation of blacklisting and that the appellant was not required to disclose it in the declaration. The Court also emphasized the need for precise language in tender documents and restraint by courts in interfering with administrative decisions.