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Informist, Thursday, Apr. 2, 2026

 

NEW DELHI – The Supreme Court Thursday said blacklisting a company from contracts or tenders is an action that stigmatises and is exclusionary and so cannot be done mechanically but must conform with principles of natural justice and reasonableness. An order to blacklist an entity has serious consequences, affecting not only existing contracts but also barring its future business transactions for some years, the court said.

 

A division bench of Justice P.S. Narasimha and Justice Alok Aradhe said contractual conditions governing termination and those that relate to blacklisting are distinct and must be exercised independently. A decision to blacklist an entity is not automatic and certainly not a logical consequence of a decision to terminate a contract, it said.

 

Even after the government decides to terminate a contract, there is still the choice of exercising the power to blacklist, the court said. An order to blacklist transcends the existing contract and debars the contractor from contracts that could be executed in the next few years. "In view of the serious consequences, it is necessary for the department to issue a specific notice proposing blacklisting of a contractor and call for an explanation as to why an order of blacklisting should not be passed," the bench said.

 

The court upheld an order of the Jharkhand government to terminate A.K.G. Construction and Developers Pvt. Ltd. from a contract to construct an elevated service reservoir after the top dome of the reservoir collapsed. However, it set aside the state government's order to blacklist the company from future contracts. 

 

The court said the government's show-cause notice to the company in 2024 regarding termination did not say anything about blacklisting. The state government appeared to have expected the company to assume the notice was for termination and blacklisting, the court said. The decision to blacklist is independent of the decision to terminate and the government has to demonstrate application of mind before it takes the next step, it said.

 

Further, the state government should also give a different show-cause notice to any company seeking explanation on why a consequential order of blacklisting should also not be passed, the court said. Proceedings for termination should not be conflated with proceedings for blacklisting. In the latter action, the contractor's future is at stake, the court said.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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