Navigating Blacklisting: Key Takeaways from Supreme Court Ruling
On 7 August 2024, the Supreme Court of India in The Blue Dreamz Advertising Pvt Ltd. & Ors. vs. Kolkata Municipal Corporation & Ors. delivered a significant judgment deciding upon the validity of a blacklisting order issued by the Kolkata Municipal Corporation (‘‘Corporation”). The Supreme Court ruled that blacklisting is akin to “civil death” and should not be resorted to in case of a genuine dispute between the parties.
Brief Facts
In the present case, the Corporation and The Blue Dreamz Advertising Pvt Ltd. (“Company”) entered into a contract for display of advertisements. Thereafter, there were several issues raised by Company against the Corporation, such as non-receipt of formal work order, non-issuance of no objection certificate, existence of lesser street hoardings, etc. The Corporation refuted the issues raised by the Company and demanded the pending license fees, failing which action as per the tender clause were to be taken against the Company. The Company asserted that the dispute could only be decided by the Arbitrator to be appointed as per the arbitration clause in the contract. However, the Corporation passed an order blacklisting the Company from participating in any tender for a period of five years or till the date of payment of outstanding amount.
The Company challenged this order before the single judge, Calcutta High Court, which set aside the blacklisting order passed by the Corporation on the grounds that there existed a civil dispute between the parties which has been referred to the arbitrator and the blacklisting order cannot be made until and unless the arbitrator decides the issue. The division bench of the Calcutta High Court reversed the single judge’s order and upheld the blacklisting order. The Company, being aggrieved by the judgment of division bench preferred an appeal to the Supreme Court.
Issue before the Supreme Court
The issue before the Supreme Court was whether the blacklisting order passed by the Corporation is valid considering the facts and circumstances of the case.
Supreme Court’s ruling
The Supreme Court set aside the order of the division bench of High Court and arrived at the following conclusions:
- In case there exists a genuine dispute between the parties based on the terms of the contract, blacklisting as a penalty cannot be imposed,
- Blacklisting may only be imposed when it is necessary to safeguard the public interest from irresponsible or dishonest contractors, and
- The Corporation being a statutory body, have a higher threshold to satisfy before passing such blacklisting orders and therefore, the measures undertaken by it should reasonable.
Our thoughts
The Supreme Court’s decision to dismiss the Corporation’s blacklisting order brings much-needed relief to private companies that frequently engage with government entities and public sector undertakings (“PSUs”). When a company or individual is blacklisted, they are barred from bidding on future tenders, and the impact extends beyond the immediate dispute, potentially leading to commercial isolation or even financial ruin. The severity of blacklisting makes it crucial that it is not wielded carelessly, leaving the aggrieved parties vulnerable under its looming threat.
In this context, the Supreme Court’s decision to require a higher threshold for blacklisting is a significant step towards preventing arbitrary use of such sanctions, ensuring they are applied only when truly warranted. The ruling is expected to rein in the excessive use of such drastic measures by PSUs, especially in cases involving legitimate civil disputes. It emphasizes the importance of PSUs adopting clear, transparent guidelines to ensure that any actions taken are proportionate to the offence committed.
Authors: Purvi Doctor, Altamash Qureshi and Nishant Bajoria
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