ERUSIAN EQUIPMENT & CHEMICALS LTD v. STATE OF WEST BENGAL & Anr.

The respondent State alleges that the petitioners were guilty of misdeclaration of goods in their export transactions. The Sales Com mittee of the State learnt from a secret letter from the Coilectc>r of that the firm of the petitioners was involved in Customs, Calcutta 676 SUPREME COURT REPORTS [1975] 2 s.c.R. malpra~tices, and tqeir case was under investigation. The Sales. Cc1m· mittee at a meeting on 21 January, 1971 resolved not to deal with the firm of the petitioners till the firm was cleared of charges of malprac tices. It is because of this resolution that the tender of the petition.ers was not accepted. The petitioners according to the respondent came to know this resolution at the meeting of the Sales Commit~ Oil 4 December, 1973. The State could not howeve1:· produce the original resolution in this Court. It may be mentioned here that the petitioners have challenged the charges and cases under the Foreign Exchange Regulations Act in the High Court at Calcutta in Writ Petition No.

959 of 1973 which is pending. The respondent in Civil Appeal No. 318 of 1974 was on approved list of the Director General, Supplies and Disposals since the year 1942. The last renewal of registration of the respondent was on 5 June, 1963 for three years. Certain reports were received against the respondent regarding shortage of timber. The Special Police Establishment took charge of account books of the . respondent in 1he month of August, 1964. A Departmental enquiry was made against the store-keeper and the StoI'!",,-holder in the Bombay Telephone Work~ shop. Those two employees were suspended in the monlh of Decem ber, 1964. 011 4 December, 1965. the department put the name of the respondent on the black list. The employees of the Government who had been suspended in tlte year 1964 were dismissed on 1 June, 1967. In the month of January, 1968 the respondent applied to the Court for return of the account books which had been taken by the Special Police Establishment.

In the month of March, 1968 the account books were ordered to be returned. The respondent filed Writ Petition in the Hiizh C-Ourt at Bombay on 20 January, 1969. On 12 January, 1973 the High C-Ourt a!lowr.d the writ petition of the respondent setting aside the order whereby the respondent was blacklisted. The State fi!ed an appeal. The High Court of Bombay dismissed fhe appeal. The present appeal is against that judgment. The employees who had been dismissed by the State also applied to the High Court for setting aside their dismissal. The High Court accepted the prayer of the employees by an order dated 3 August, 1972. In Writ Petitions counsel fpr the State submitted that the petitio111!r was not entitled to any orcfor of mandamus inasmuch as the sales were contractual. It was said that the. petitioner was not entitled as of right to acceptance of tender. It was also said that the attitude of the State · was not discriminatory against the petitioner but that the State wanted that the pending proceedings against the petitioner for alleged viola tion of Foreign Exchange Regulation Act should be adjudicated first ;ind thereafter the State would deal with the petitioner.

A B c D E F G H ERUSIAN· EQUIPMENT v. WEST BENGAL (Ray, C.J.) 677 'A B c The Solicitor General on behalf of the appellant in Civil Appeal No. 318 of 1974 made these submissions. The Government could "hoose any person for entering into a contract. Further, the State could insist on dealing with persons in w horn the State had trust for integrity. The sales were not under a s.tatute. Black-listing is an inter nal and confidential step. Rights under Articles 14, 19 and 21 do not extend to the compelling of any third party including the Govern ment to negotiate or enter into a contract. The duty to .act fairly may include in many cases duty to act judicially and those would be cases where there is existing vested rights. The duty to act fairly would not always mean a duty to hear the party affected. Whereas public black listing is not confidential, departmental black-listing will be a con fidential matter.

If natural justice does not come into play in rejecting a bid, natural justice does not operate at the time of entering into con tract. Under Article 298 of the Constitution the Executive power of the Union and the State shall extend to the carrying on of any trade and to the acquisitiOll, holding and disp<>Sal of property and the making of contracts for any purpose. The State can carry on executive func tion by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State bas there the duty to observe equality. An ordinary indi, idual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination.

The order of black-listing has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of black-listing. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State actS to the prejudice of .a person it bas to be supported by legality. But for the order of blacklisting.' the petitioner would have been entitled to participate iii the purchase of cinchona. Similarly respondent in the appeal would also have been entitled but for the order of blacklisting to tender competitive rates. The State can enter into contract with any person it chooses. No the Goverrunent must person has a fundamental right enter into a contract with him. A citizen has a right to earn livelihood and to pursue any trade.

A citizen bas a right to claim equal treat ment to enter into a contract which may be proper, necessary and esseutial to his lawful calling. to insist that The blacklisting order does not pertain to any particular contract. The blacklisting order involves civil consequences. It casts a slur. It create• a barrier between the persons 1Jlacklisted and the Government ir. the matter of transactions. The blacklists are "instruments of coercion". D E F G H 678 Sl'I'REME COURT REPORTS [1975] 2 S.C.R. In passing an order o.f blacklisting the Government department acts under what is described as a standardisekl Code. This is a Code for internal instruction. The Government pepartments make regular purchases. They maintain list of approved suppliers after taking into account the financial standard of the firm, their capacity and their past performance. The removal from the list is made for various reasons. The grounds on which blacklisting may be order ed are if the proprietor of the firm is convicted by court af law or securitv considerations so warrant or if there is strong justification for believing that the proprietor or employee of the firm, has been guilty of malpractices such as bribery, corruption, fraud. or if firm continuouslv refuses to return Government dues or if the firm employs a Government servant, dismissed or removed on account of corruption in a position where he could corrupt Government servant.

The petitioner was blacklistek:I on the wound of justification for be lieving that the firm has been guilty of malpractices such as bribery, corruption, fraud. The petitioners were blacklisted on the ground that there were proceedings pending against the petitioners for alleg ed violation of provisions under tbe Foreign Exchange Regulations Act. The Government is a l(overnment of laws and not of men. It is true th at neither the petitioner nor the respondent has any right to enter into a contrac• but t'1ey are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods. This privilege arises because it is the Government which is trading with the public and the democratic form of Government demands and discrimination in such cqualitv and absence as a form of liberty transactions. Hohfeld opposed to a duty. The activities of the Government hav~ a public element and, therefore, there should be fairness and equality.

Tt,c State need not enter into anv contract with anv one but if it does so, it must do as fairly without discrimination and without unfair proc,e dure. Reputation is a part of person's character and personality. Blacklisting tarnishes one's reputation.. of arbitrariness treats privileges · A B c D F Exclusion of a member of the public from dealing with a State in sales transactions has the effect of preventing him from purchas i~g ~nd doing a lawful trade in the goods· by discriminating against him m favour of other people. The State can reasonable c?nditions regarding rejection a~d acceptance of bids or qualifica. t1ons of bi'dders. Just as exclusion of the lowest tender will be arbi trarv. similarlv exclusion of a person who offers the highest price from participating at a public auction would also have the. aspect of arbitrariness. impose Where the State is dealing with individuals in transactions of sales anrt ourchase of goods. the two imnortant factors are that an individual is entitled to trade· with the Government and an indivi dual is ~ntitletl to a. fair and equal treatment with others.

A duty to act fairly can be mterpreted as meaning a duty to observe certain aspects of rules of natural justice. A bodv may be under a duty to H ERUSIAN EQUIPMENT v. WEST BENGAL (Ray, C.J.) 679 A · give fair consideration to the facts and to consider the representa tions but not to disclose to those persons details of information in its possession. Sometimes duty to act fairly can also be sustained without providing opportunity for ·an oral hearing. It . will depend upon the nature of the interest to be affected, the circumstances in which a oower is exercised and the nature of sanctions • involved therein .. B- · Blacklistin~ has the effect of preventing a person from the privi relationship with the leite and advantaite of entering into lawful · Government foi; purpbses of itains. The fact that a disability is created bv the order of blacklistin~ indicates that the relevant autho ritv is to have an objective. satisfaction.