Debarment Without Proper Show Cause Notice Cannot Be Sustained – Delhi High Court Sets Aside Debarment of M/S State Engineers by Pragati Power Corporation Ltd.

In a significant ruling, the Delhi High Court today set aside the debarment communication issued by Pragati Power Corporation Ltd. (PPCL) against M/S State Engineers, emphasizing the fundamental principle of natural justice in administrative decision-making.

The petitioner, M/S State Engineers, had approached the court challenging the communication dated 17.06.2020, which debarred them from participating in any tenders floated by IPGCL or PPCL for a period of three years. The debarment was based on allegations of non-payment of wages and other dues to contractual employees.

In the judgment delivered by Hon'ble Mr. Justice Subramonium Prasad, the court scrutinized the circumstances leading to the debarment. The court observed, "Pursuant to the show cause notice, replies have been given by the Petitioner and the impugned communication dated 17.06.2020 has been issued by the Respondent debarring the Petitioner for a period of three years from participating in any tenders floated either by the IPGCL or PPCL."

Highlighting the importance of adhering to principles of natural justice, the court found that there was a lack of a specific show cause notice for the debarment. Justice Prasad noted, "It is not the case of the Respondent that violation of a term of contract would automatically result in debarment. It is now well settled by the Apex Court in a number of judgments that before debarring any entity, a notice must be given to that entity informing that the entity would be debarred. Debarment without show cause notice cannot be sustained."

The court also referred to the Apex Court's observations in UMC Technologies (P) Ltd. v. Food Corporation of India, which underscore the necessity of a prior show-cause notice and reasonable opportunity of being heard before any action like blacklisting or debarment is taken.

Concluding the judgment, the High Court set aside the debarment communication and allowed the respondent to issue a fresh show cause notice to the petitioner for debarment on valid grounds, emphasizing the need for fair and just administrative processes.

Date of Decision: 1st February, 2024

M/S STATE ENGINEERS VS PRAGATI POWER CORPORATION LTD.