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Principles of Natural Justice a Must in Debarment or Blacklisting

The High Court of Delhi on April 10, 2024, in the case of Oasis Projects Ltd. v. National Highway and Infrastructure Development Corpn. Ltd. [ARB. A. (COMM.) 39/2023 and I.A. 24552/2023], held that the debarment and blacklisting of an entity would result in a civil death of its business and therefore the principles of natural justice had to be adhered to before making such a decision.

 

In this case, a civil construction company (the appellant) was awarded a contract by the respondent for the “Balance work for four-laning of NH — 39 Dimapur- Kohima Road from Design Km 152.490 to Km 166.700 [Package III]” in Nagaland. The parties entered into an Engineering, Procurement, and Construction Agreement for a one-year period. During the execution of the work, the appellant faced various challenges, including difficulty in obtaining right of way. It was the claim of the appellants that, due to proper compensation not being awarded to landowners and issues such as illegal mining on the lands forming a part of the right of way, severe delay was caused in the execution of the work.

These issues coupled with opposition met from local groups and natural calamities like landslides were treated as Force Majeure under the contract which caused delays in the execution of the work. Subsequently, the respondent issued a show cause notice to the appellant, citing slow progress and poor planning as reasons for declaring them a ‘non-performer’ and terminating the contract. As a result of the termination, the appellant faced a two-year debarment and was publicly labeled as a ‘non-performer’ on the respondent’s website.

The appellant moved an application before the sole arbitrator appointed by the court, challenging the imposition of the debarment and seeking a stay. This prayer was rejected for want of detailed examination regarding the validity of the termination and the subsequent debarment, bringing about the present appeal.

The court scrutinized whether the termination of the contract automatically resulted in the appellant’s debarment and found that the contract’s clauses mandated debarment only in cases of contractor default. Emphasizing the importance of the principles of natural justice in cases of debarment and blacklisting, the court observed that a separate show cause notice should have been issued for debarment.

Stating that debarment and blacklisting is in the nature of civil death for any person or entity, the court recognized that debarment could lead to significant financial and commercial losses for the appellant, especially considering that the respondent was a major player in projects involving highway construction. Consequently, the court set aside the arbitrator’s decision, directing the appellant not to be treated as a non-performer or debarred entity. Additionally, the court ordered the removal of any declarations of non-performance or debarment from the respondent’s website.