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Hariom Project Private Limited Vs. Military Engineer Services, Director of Contract Management and Ors. - (High Court of Delhi) (17 Aug 2020)

Every breach of contract cannot justify an order banning the Contractor from future contracts



Present petition has been filed by the Petitioner challenging the order passed by the Respondent no. 1 debarring the Petitioner for a period of two years from the date of the order from participating in the tenders of Military Engineering Services ('MES').

The Petitioner was awarded a Contract of additions and alterations of certain Pre-Engineered Building ('PEB') at Air Force Station, vide Letter of Acceptance dated 30th August, 2013, for a lump sum amount of Rs. 5.46 crores. Thereafter, a Work Order dated 14th September, 2013 was issued in favor of the Petitioner.

The Petitioner has been banned primarily on the allegation of breach of the contractual term for not having carried out the erection work through one of the Specialist Firms. For such default, and as was the opinion of various Officers of the Respondents, the penalty of blacklisting is totally disproportionate and arbitrary. The same, cannot therefore, be sustained. Every breach of contract cannot justify an order banning the Contractor from future contracts. It is also to be considered whether such breach was contemptuous or in utter disregard to the contractual responsibility of the Contractor, thereby making the Contractor unsuitable for future contracts, or was it because of a bona fide dispute on interpretation of the contractual terms. The past conduct of the Contractor is also to be considered while taking such decision as it amounts to the "civil death" of the Contractor.

In the present case, the Board of Officers themselves have opined, that the Contract format adopted by the Respondents was not the standard format. There were certain ambiguities in the contractual terms. The factor that, the Petitioner has successfully performed various contracts for the Respondents since the last 27 years with an unblemished record is also not denied by the Respondents. It is also evident that, the Technical Board of Officers, the Chief Engineer (Air Force), and the ADG (NEI), under whose supervision and control the Contract was performed by the Petitioner, have all opined that, the Petitioner was not to be blamed for the sagging of the girder.

It is trite law that, blacklisting of a Contractor visits the Contractor with civil consequences as it casts a slur, attaches a stigma and creates a barrier between the blacklisted person and the State entities in matters of commercial transactions. It has serious adverse consequences for the person/entity blacklisted. It in fact, amounts to "civil death" of the Contractor. The decision to blacklist a Contractor has a more far-reaching effect and adverse consequence on the Contractor than a mere exercise of a contractual power to claim damages or termination of the Contract. Its effect is all-pervasive.

There is no allegation of fraud or corruption or moral turpitude against the Petitioner; the Board of Officers opined that, the format of the Contract was ambiguous and was not of the standard format; the fault was admittedly with the design and not the execution; the Petitioner was not questioned during the execution/erection work but only later when the work was delayed; and the Authorities, including the Board of Officers, the CE(AF) and the ADG(NEI), have maintained that the penalty of blacklisting the petitioner is harsh.

For the breach of the contract, the Petitioner could have been visited with some other penalty, including a claim of damages, however, the same has not been considered. The Impugned Decision suffers from arbitrariness and cannot be sustained. Petition allowed.


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