Supreme Court Limits Blacklisting Period for Contractor in Odisha Flyover Collapse Case: State of Odisha vs. M/s Panda Infraproject Limited (2022)

LEGAL ISSUE: Whether a contractor can be permanently blacklisted for lapses in construction leading to a fatal accident.

CASE TYPE: Contract Law, Public Works

Case Name: State of Odisha & Ors. vs. M/s Panda Infraproject Limited

[Judgment Date]: 24 February 2022

Date of the Judgment: 24 February 2022

Citation: (2022) INSC 174

Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can a contractor be permanently barred from government contracts for a construction mishap? The Supreme Court of India recently addressed this question, examining the balance between accountability and fairness in blacklisting procedures. This case arose from a tragic flyover collapse in Odisha, where a contractor’s alleged negligence led to loss of life and injuries. The Supreme Court, while acknowledging the seriousness of the contractor’s lapses, set aside the High Court order and limited the blacklisting period to five years, emphasizing that debarment should not be permanent.

The judgment was authored by Justice M.R. Shah, with Justice B.V. Nagarathna concurring.

Case Background

In 2011, M/s Panda Infraproject Limited (the respondent) was awarded a contract for constructing a flyover at Bomikhal Junction in Bhubaneswar, Odisha. In 2017, during the construction of the railway overbridge, a ten-meter slab of the flyover collapsed. This incident resulted in the death of one person and injuries to eleven others. A high-level inquiry was conducted by the Chief Engineer (Design) and Chief Engineer (DPI and Roads). The inquiry committee found the contractor responsible for the collapse, citing deficiencies in workmanship, inadequate safety measures, and failure to submit the formwork design.

The committee’s report highlighted that the contractor had not submitted the formwork design, adopted their own arrangement leading to the collapse, failed to ensure adequate safety measures, and did not maintain quality assurance as per the agreement. Based on this report, the State Government initiated proceedings to blacklist the contractor.

Timeline

Course of Proceedings

Following the inquiry report, the State Government issued a show cause notice to the contractor, asking why they should not be blacklisted for violating the contract. The contractor submitted a detailed reply. The Chief Engineer (DPI & Roads), Odisha, issued an order on 12.12.2017, blacklisting the contractor with immediate effect, banning them from participating in any government work in Odisha.

Aggrieved by the blacklisting order, the contractor filed Writ Petition (C) No. 26408 of 2017 in the High Court of Orissa at Cuttack. The High Court set aside the blacklisting order, primarily on the grounds that it violated the principles of natural justice. Subsequently, the contractor filed another Writ Petition (C) No. 16723 of 2021, as their name remained on the list of blacklisted contractors on the government portal. The High Court directed the State to remove the contractor’s name from the list.

The State of Odisha then filed Civil Appeal No. 1083 of 2022 against the High Court’s order setting aside the blacklisting, and Civil Appeal No. 1084 of 2022 against the order to remove the contractor’s name from the blacklisted list. These appeals were heard by the Supreme Court of India.

Legal Framework

The judgment refers to the Orissa Public Works Department (OPWD) Code, specifically Appendix-XXXIV, which outlines the procedure for blacklisting contractors. The Court also discusses the principles of natural justice, emphasizing the need for a fair hearing before any punitive action is taken. The Court refers to the general principles of debarment and blacklisting as a method of disciplining deviant contractors, as established in previous judgments. The Court also considers the State Government’s office memorandum dated 26.11.2021 regarding the blacklisting period.

Arguments

Arguments by the State of Odisha:

• The High Court erred in setting aside the blacklisting order, as it was not in violation of natural justice principles. A show cause notice was issued and the contractor’s reply was considered before passing the order.
• The blacklisting order was not pre-decided. The inquiry committee’s report was merely a basis for initiating the blacklisting action.
• The High Court failed to consider the seriousness of the contractor’s lapses, which led to a fatal accident.

Arguments by M/s Panda Infraproject Limited (Contractor):

• The blacklisting order was pre-determined. A letter dated 10.10.2017 from the Under Secretary in the Works Department to the Chief Engineer showed that the government had already decided to blacklist the contractor before issuing the show cause notice.
• The show cause notice was a mere formality, as the decision to blacklist was already taken.
• The contractor was asked to complete the remaining work even after the show cause notice, which they completed to the satisfaction of the Department.
• The permanent blacklisting was disproportionate to the charge and the contractor’s first offense. The government’s own memorandum dated 26.11.2021 limits blacklisting to three years per offense.

The contractor relied on the decisions of the Supreme Court in the cases of Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and Anr. (1975) 1 SCC 70, Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Ors. (2014) 14 SCC 731 and M/s. Daffodills Pharmaceuticals Ltd. & Anr. Vs. State of U.P. & Anr. 2019 (17) Scale 758.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether the High Court was correct in setting aside the order of blacklisting the respondent – contractor.
2. Whether, in the facts and circumstances of the case, the contractor was required to be debarred/blacklisted permanently?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court cited Grosons Pharmaceuticals (P) Ltd. & Anr. v. State of U.P., (2001) 8 SCC 604 to emphasize that a show cause notice and an opportunity to reply is sufficient to satisfy the principles of natural justice.
• The Court cited Gorkha Security Services v. Govt. (NCT of Delhi) & Ors., (2014) 9 SCC 105 to explain the purpose of a show cause notice is to make the noticee understand the case against them.
• The Court referred to Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Ors. (2014) 14 SCC 731 to reiterate that debarment should not be permanent.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by a combination of factors. While acknowledging the seriousness of the contractor’s negligence, which led to a fatal accident, the Court also emphasized the importance of procedural fairness and proportionality in punitive actions. The Court found that the High Court had erred in concluding that the blacklisting order was pre-decided and violated natural justice. However, the Court also recognized that a permanent blacklisting was too harsh, and thus limited the blacklisting period to five years.

The court’s reasoning was based on a careful consideration of both the factual circumstances and the legal principles involved. The court emphasized that while the contractor’s lapses were serious, the punishment should be proportionate and not permanent. The court also clarified that the issuance of a show cause notice and consideration of the reply satisfies the requirements of natural justice.

The court considered the seriousness of the incident, where a slab collapse led to a death and injuries, but also considered the principle that debarment should not be permanent. The court noted that the contractor’s lapses were serious, but the punishment should be proportionate. The court also emphasized that the High Court erred in its interpretation of the blacklisting procedure.

The Court quoted from the judgment:

“Merely because the show cause notice was issued after the inquiry committee report was considered and thereafter the State Government took the decision to initiate proceedings for blacklisting, that by itself it cannot be said that the order of blacklisting was pre-determined.”

“In the present case as observed hereinabove, show cause notice was issued upon the contractor by which the contractor was called upon to show cause why he be not blacklisted; the show cause notice was replied to by the contractor and thereafter, after considering the material on record and the reply submitted by the contractor and having found the serious lapses which led to a serious incident in which one person died and eleven others were injured, the State Government took a conscious decision to blacklist the contractor.”

“However, to debar him permanently can be said to be too harsh a punishment. But considering the subsequent O.M. dated 26.11.2021 reproduced hereinabove (to which as such we do not agree as observed hereinabove), we are of the opinion that if the blacklisting is restricted to five years, it may be in the fitness of things.”

There were no dissenting opinions in this case. The judgment was delivered by a bench of two judges, with both concurring on the final decision.

The Supreme Court’s decision has potential implications for future cases involving blacklisting of contractors, emphasizing that while accountability is crucial, it must be balanced with fairness and proportionality. The Court also clarified that a show cause notice and consideration of the reply is sufficient to satisfy the principles of natural justice.

The Court did not introduce any new doctrines or legal principles but reinforced the existing principles of natural justice and proportionality in administrative actions.

Key Takeaways

• Blacklisting of contractors should not be permanent.
• The period of blacklisting should be proportionate to the offense and the gravity of the lapses.
• A show cause notice and an opportunity to reply are sufficient to satisfy the principles of natural justice.
• High Courts should consider the seriousness of the allegations and the consequences of the contractor’s actions before interfering with blacklisting orders.
• The State Government should formulate clear guidelines for determining the period of blacklisting, considering the gravity of the offense and the consequences of the incident.

This judgment underscores the need for a balanced approach in dealing with errant contractors, ensuring accountability while avoiding disproportionate punishments. It also emphasizes the importance of following due procedure and providing a fair hearing before taking punitive action.

Directions

The Supreme Court directed that the blacklisting period for the contractor be restricted to five years from the date of the original blacklisting order.

Development of Law

The ratio decidendi of this case is that while blacklisting is an effective method for disciplining deviant contractors, it should not be permanent and must be proportionate to the offense. The Supreme Court clarified that a show cause notice and an opportunity to reply are sufficient to satisfy the principles of natural justice. This judgment reinforces the existing legal principles and provides guidance on the appropriate duration of blacklisting, emphasizing that it should be based on the gravity of the offense and not solely on the number of offenses. The Court also clarified that the High Court’s interference was not justified given the seriousness of the incident.

Conclusion

The Supreme Court partly allowed the appeal by the State of Odisha, setting aside the High Court’s judgment that had quashed the blacklisting order against M/s Panda Infraproject Limited. While acknowledging the serious lapses on the part of the contractor, which led to a fatal accident, the Supreme Court limited the blacklisting period to five years, emphasizing that debarment should not be permanent. This decision underscores the importance of balancing accountability with fairness and proportionality in administrative actions.