Blacklisting A Contractor Is 'Civil And Commercial Death': MP High Court

Indore (Madhya Pradesh): In a significant ruling on blacklisting of government contractors, the Madhya Pradesh High Court has held that blacklisting carries severe civil and commercial consequences and that the loss arising from it cannot be treated as an ascertainable monetary loss.

A five-judge larger bench comprising Acting Chief Justice Vivek Rusia, Justice Vivek Agarwal, Justice Subodh Abhyankar, Justice Vinay Saraf and Justice Alok Awasthi settled the conflicting legal position in Nitin Enterprises vs Urban Administration and Development Department, arising from a dispute involving an Indore contractor and Indore Municipal Corporation.

In its 262-page order, the court held that a challenge to blacklisting does not fall within the definition of "dispute" under Section 2(1)(d) of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, and therefore is not required to be taken before the statutory arbitration tribunal.

The bench observed that blacklisting has consequences far beyond a conventional monetary claim.

The court observed, "Blacklisting is having severe civil consequences" and causes loss of business opportunities and goodwill.

The judgment further described it as "civil and commercial death" for a person or entity prevented from participating in future tenders.

Only chief engineer can pass blacklisting order

The court also ruled that the power to blacklist or debar a contractor can be exercised only by the chief engineer or an officer of equivalent rank, in accordance with the PWD circular dated March 24, 2015.

A competent or appellate authority under the contract can recommend blacklisting, but cannot itself pass the order merely based on a contractual clause.

On the question of judicial review, the bench held that a writ petition under Articles 226 and 227 of the Constitution can be entertained against blacklisting depending on the facts and circumstances, including where principles of natural justice are violated.

The court specifically held that the bar under Section 20 of the 1983 Act does not apply to a challenge to blacklisting.

Case originated after IMC blacklisted contractor

The case originated from a tender floated by Indore Municipal Corporation in 2019 for cement-concrete work at Amrapuri Road.

Nitin Enterprises, whose proprietor is Nitin Lodhwal, emerged as the lowest bidder and furnished a performance bank guarantee of Rs 2.64 lakh. The work was to be completed within 240 days.

After the contractor failed to complete the work within the prescribed period, the corporation terminated the contract, forfeited the performance security and initiated blacklisting proceedings.

The contractor subsequently approached the High Court, leading to the larger bench reference on whether a challenge to blacklisting could be taken before the statutory tribunal.

The bench also held that the 2025 amendments to the Madhya Pradesh Madhyastham Adhikaran Adhiniyam do not alter the maintainability of a challenge to blacklisting. As many as 131 cases were referred to while deciding the matter.