(2014) 9 SCC 105; Kulja Industries Ltd. v. Chief General Manager & Ors. v. for & Ors.

ORDER It was informed by letter no. 727 dated 01.06.2024 of Executive Engineer, Drinking Water and Sanitation Division, Jhumritilaiya that the water tower under construction in Neemadhi village under the work of Koderma-Domchonch Jaynagar Large Rural Water Supply Scheme, which is allotteed to the contractor M/s A.K.G. Construction & Developers Pvt. Ltd., Ranchi, collapsed on 01.06.2024. In the light of the above, the contractor was asked for clarification by departmental letter no. 1311 dated 04.06.2024, in the light of which the contractor submitted clarification through letter no. AKG/24-25/26 dated 06.06.2024 in which the contractor has reported that no laxity has been shown in the construction of the under- construction water tower and the under-construction water Supreme Court Reports [2026] 4 S.C.R. 337 tower fell due to natural disaster/cyclonic storm. In the light of the above, by letter no.

663 (CDO) dated 21.06.2024 of this office, the Superintending Engineer, Drinking Water and Sanitation Zone, Hazaribagh was directed to review the clarification received from the contractor point by point and provide a report with his clear opinion. The opinion was provided by letter no. 545 dated 21.06.2024 of the Superintending Engineer, Drinking Water and Sanitation Zone, Hazaribagh in which it is reported that the work described has not been done as per the approved Design & Drawing and the quality of the overall work has not been taken care of. In the matter described by the department, an inquiry was conducted by a three-member inquiry committee. The inquiry committee submitted the inquiry report through departmental G.S.P. No.-283 dated 06.06.2024 in which it is reported that negligence was shown in getting the construction work of the water tower completed as per the approved Design & Drawing and quality was not taken care of, due to which the incident of collapse/demolition of the water tower occurred.

Thus, the contractor is responsible/ guilty for negligence and negligence in getting the quality work done. The contractor informed the concerned Executive Engineer through his letter-AKG/24-25/23 dated-01.06.2024 that he is ready to construct ESR again at his own expense in place of the demolished ESR under construction. It was never appropriate for him to construct ESR again without departmental order. This act of his reflects an attempt to hide his wrongdoings. The department condemns this modus operandi of the contractor. It is clear from the above that the contractor got low quality construction work done in the work of the scheme, which tarnished the image of the department and created obstacles in achieving the objectives of the department. This is a clear violation of rule number-10.1.8 and 10.1.15 of the Contractor Registration Rules 2012. Therefore, M/s A.K.G. Construction and Developers Pvt.

Ltd v. State of Jharkhand & Ors. 338 [2026] 4 S.C.R. after review by the department, the explanation of the contractor is rejected. Therefore, after due consideration by the department in the light of Rule No. 10.1.8 and 10.01.15 of Contractor Registration Rules 2012, the contractor M/s A.K.G. Construction & Developers Pvt. Ltd., Panna Enclave, Flat No-202, Kadru, Ranchi-834002, e-mail: ketan.kumar007@ gmail.com is blacklisted for 5 (five) years with immediate effect and in this context, the following order is given in the light of Rule No. 10.3 and 10.4 of Contractor Registration Rules 2012:-

It is decided to stop all the works being done by the contractor from the date of issuance of the order and to confiscate the security deposit of all the works. Also, the concerned regional Chief Engineer/Superintending Engineer/Executive Engineer will ensure to take appropriate action as per the requirement to complete the remaining work being done by the contractor.

The registration of the contractor in all categories in the department is cancelled with immediate effect.

The proposal has received the approval of the Hon’ble Departmental Minister. (Prabhat Kumar Singh) Chief Engineer, C.D.O Date: 23/08/2024”

Aggrieved, the appellant filed an appeal, which came to be dismissed vide order dated 05.12.2024 of the Appellate Authority cum Principal Secretary, Drinking Water and Sanitation Department. The appellant filed a writ petition challenging orders dated 23.08.2024 and 05.12.2024. By impugned judgement and order dated 07.02.2025, the High Court dismissed the writ petition, while also imposing a cost of Rs. 2 lakhs on the appellant. It was held that the corroborated findings of the enquiries conducted, as also the appellant’s own admission in the form of offering to reconstruct the entire ESR at its own cost, leads to a logical inference of negligence in carrying out the construction as per the approved design and drawings. It was also held that the orders impugned were neither illegal nor Supreme Court Reports [2026] 4 S.C.R. 339 arbitrary as proper opportunity was given to the appellant at every stage.

The appellant sought a review of the decision arrived by the High Court on self-same grounds, which naturally came to be dismissed by the High Court vide impugned order dated 04.08.2025. Thus, the present appeals have been filed against the main judgement as well as the review order. Submissions

Mr. M.S. Ganesh, learned senior counsel appearing on behalf of the appellant, would submit that the termination as well as the blacklisting are illegal and arbitrary. He would submit that constitution of the three- member committee, followed by its report and subsequent reports, were without giving any opportunity to the appellant. He would also submit that the arbitrariness is writ large as the decision to blacklist had the effect of terminating all subsisting contracts.

Mr. Kumar Anurag Singh, learned counsel for the respondent Department would submit that Clause 59 of the General Conditions of Contract (GCC), dealing with termination of contract does not provide for a prior notice. He would also rely on Rule 10 of the Contractor Registration Rules, 2012, dealing with blacklisting, which mandates issuance of a show cause notice before blacklisting a contractor upon misconduct. He would submit that the show cause notice 04.06.2024 was specifically for purpose of blacklisting the appellant, which according to him, is further cemented by express use of the phrase “why action should not be taken against it as per the rules”. In view of the concurrent operation of GCC and the 2012 Rules, he submits that the common order of termination cum blacklisting is compliant of all conditions and therefore legal and valid. Analysis

The controversy revolves around a true and correct interpretation of Clause 59 of GCC, relating to termination, and Rule 10 of 2012 Rules, relating to blacklisting. The Clause and the Rule is reproduced herein for ready reference.

Clause 59 of GCC is as follows - M/s A.K.G. Construction and Developers Pvt. Ltd v. State of Jharkhand & Ors. 340 [2026] 4 S.C.R. “59. Termination

59.1. The Employer or the Contractor may terminate the Contract if the other party causes a fundamental breach of the Contract.

59.2. Fundamental breaches of Contract include, but shall not be limited to the following: (a) The Contractor stops work for 28 days when no stoppage of work is shown on the current Programme and the stoppage has not been authorized by the Engineer; (b) The Engineer instructs the Contractor to delay the progress of the Works and the instruction is not withdrawn within 28 days; (c) The Employer or the Contractor is made bankrupt or goes into liquidation other than for a reconstruction or amalgamation. (d) The Engineer gives Notice that failure to correct a particular Defect is a fundamental breach of Contract and the Contractor fails to correct it within a reasonable period of time determined by the Engineer. (e) The Contractor does not maintain a security which is required; (f) The Contractor has delayed the completion of works by the number of days for which the maximum amount of liquidated damages can be paid as defined in the Contract data; and (g) If the Contractor, in the judgment of the Employer has engaged in corrupt or fraudulent practices in competing for or in executing the Contract. For the purpose of this paragraph: “corrupt practice” means the offering, giving, receiving or soliciting of anything of value to influence the action of a public official in the procurement process or in contract execution. “Fraudulent practice” means a misrepresentation of facts in order to influence a procurement process or the execution of a contract to the detriment of the Borrower, and includes Supreme Court Reports [2026] 4 S.C.R. 341 collusive practice among Bidders (prior to or after bid submission) designed to establish bid prices at artificial non-competitive levels and to deprive the Borrower of the benefits of free and open competition.”

59.3. When either party to the Contract gives notice of a breach of contract to the Engineer for a cause other than those listed under Sub Clause 59.2. above, the Engineer shall decide whether the breach is fundamental or not.

59.4. Notwithstanding the above, the Employer may terminate the Contract for convenience.

59.5. If the Contract is terminated the Contractor shall stop work immediately, make the Site safe and secure and leave the Site as soon as reasonably possible”

Rule 10 of Contractor Registration Rules, 2012 is as follows - “10. BLACKLISTING

10.1 A contractor in person or any partner of a registered firm or any director of a private public limited company or his technical staff or any of his authorized representatives, registered in any of the above categories, may be blacklisted for any of the following misconducts:

10.1.1 Creating law and order problem in Government office while receiving tender documents, submitting tender documents or doing any work related thereto.

10.1.2 Intimidating or assaulting concerned officer or employee.

10.1.3 If the contractor is found selling or misusing Government goods such as cement, steel and pipes etc..

10.1.4 If convicted in any criminal activity.

10.1.5 If wrong documents are submitted for registration under these rules.

10.1.6 In case of being banned or blacklisted by any department/undertaking of the Government of India or any State Government.

10.1.7 In case of violation of Rule 6.2 of these rules. M/s A.K.G. Construction and Developers Pvt. Ltd v. State of Jharkhand & Ors. 342 [2026] 4 S.C.R.

10.1.8 Failure to execute the work as per the agreement and prescribed specifications.

10.1.9 In case of the contractor handing over his work to another contractor or any person without departmental order (subletting).

10.1.10 No improvement is reflected in the conduct of the suspended contractor.

10.1.11 Corrupting or attempting to corrupt the tender process.

10.1.12 indulging in malpractices likes bribery, corruption or fraud.

10.1.13 any such act which obstructs the achievement of the objectives of the works department.

10.1.14 applying political pressure directly or indirectly.

10.1.15 doing work of poor quality.

10.1.16 directly or indirectly threatening or intimidating departmental officers/employees.

10.1.17 not achieving physical targets in proportion to the time elapsed.

10.2 The blacklisted contractor will be debarred from working in any Government Department / Undertaking in future and his registration will be cancelled with immediate effect.

10.3 If a registered contractor is blacklisted in any one category in the light of Rule 10.1, then the registration of the said contractor in all other categories, if any, will also be deemed to be cancelled with immediate effect.

10.4 All the works being carried out by the blacklisted contractor in the Department of Drinking Water and Sanitation, Jharkhand will be stopped from the date of the order issued in the light of Rule 10.1, and the security deposit of all the works will be forfeited and appropriate action will be taken as per requirement to complete the remaining works. Supreme Court Reports [2026] 4 S.C.R. 343

10.5. Before blacklisting a contractor of a particular category, it will be necessary to issue a show cause notice.

10.6 The order of blacklisting can be passed by the registration officer of the concerned category or the officer under who’s supervision/under whose supervision the registration officer is working.

10.7 Against the penalty imposed, the contractor may file an appeal before the departmental secretary within thirty days.

10.8 After approval by the government, the blacklisting order will be issued by the concerned registration officer.”

Before we proceed to consider the Rules relating to blacklisting and its adverse consequences, we may state that it was made clear to Mr. M.S. Ganesh, learned senior counsel for the appellant, that in view of the clear findings of negligence as articulated in the order of termination, we will not interfere with the decision of termination. As regards the submission of Mr. M.S. Ganesh that the appellant did not have sufficient opportunity to defend himself, notwithstanding the submission of Mr. Kumar Anurag Singh that termination does not require prior notice, we are of the opinion that the appellant had sufficient opportunity at the common hearing for termination and blacklisting. Further, the appellant argued the entire case before the Appellate Authority. Appellant also raised and contested the case on merits before the Division Bench. Having examined the contest and its due consideration all through, we are of the opinion that the decision as regards termination is unimpeachable, on merits as well as on the grounds of due process.

In so far as the order relating to blacklisting is concerned, we are of the opinion that this issue requires close scrutiny and that will be undertaken by reference to Rule 10 of the 2012 Rules.

A cursory reading of Rule 10 makes it evident that an order of blacklisting has serious consequences, effecting not only the existing contracts but also bars future business transactions for some years. Under Rule 10.3, if a registered contractor is blacklisted for any one category as per Rule 10.1, then the registration of the said contractor in all other categories, if any, will be deemed to be cancelled with immediate effect. Upon such cancellation, under Rule 10.4, all the M/s A.K.G. Construction and Developers Pvt. Ltd v. State of Jharkhand & Ors. 344 [2026] 4 S.C.R. works carried out by the blacklisted contractor in the department will be stopped from the date of issuance of order under Rule 10.1. It also provides that the security deposit for all the works will be forfeited.

The contractual conditions governing termination on the one hand and those that relate to blacklisting on the other are distinct and will be exercised independently. A decision of blacklisting is not automatic and certainly not a logical consequence of a decision of termination. Even after the Department decides to terminate the contract, there is still a choice of exercising the power of blacklisting. These decisions operate in two dimensions - past and subsisting for termination and future for blacklisting. In other words, an order of blacklisting transcends the existing contract and debars the contractor from contracts that could probably be executed in the next five 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. This is exactly the purpose and object behind Rule 10.5.

The requirement under Clause 10.5 is a clear case of legislative (in this case subordinate legislation) incorporation of principles of natural justice. This Court has time and again emphasised the need to adhere to principles of natural justice while passing blacklisting orders, given the grave consequences that follow. In Erusian Equipment & Chemicals Ltd. v. State of West Bengal1, it was observed that – “15. The blacklisting order does not pertain to any particular contract. The blacklisting order involves civil consequences. It casts a slur. It creates a barrier between the persons blacklisted and the Government in the matter of transactions. The blacklists are “instruments of coercion”.

Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is 1