Court highlights the necessity of separate show cause notices for contract termination and blacklisting, asserting the importance of natural justice principles.
In a significant interim relief for M/s Bafna Global Venture Pvt. Ltd., the Delhi High Court has issued an order restraining the National Council of Educational Research and Training (NCERT) from taking coercive actions related to the invocation of a bank guarantee amounting to Rs. 6.09 crore. This decision comes in light of allegations that NCERT arbitrarily terminated a GeM contract and blacklisted the petitioner without adhering to the principles of natural justice.
Presided over by Justice Mini Pushkarna, the court scrutinized the actions of NCERT following a petition by Bafna Global Venture Pvt. Ltd. The petitioner contested NCERT's order dated June 22, 2026, which terminated their contract, invoked the bank guarantee, and blacklisted the company for two years. The court observed that such actions were taken without granting Bafna Global Venture a proper hearing or considering their invocation of a force majeure clause due to supply disruptions caused by the ongoing conflict in West Asia, specifically Iran.
The court emphasized the necessity of issuing separate show cause notices for contract termination and blacklisting, referencing the Supreme Court's judgment in A.K.G. Construction and Developers Pvt. Ltd. v. State of Jharkhand. Justice Pushkarna noted that blacklisting, which carries severe civil consequences, must be treated distinctly from contract termination and requires a clear application of mind and adherence to principles of natural justice.
The petitioner's counsel argued that the raw material shortage, particularly of Hydrogen Peroxide due to the war in Iran, hindered their ability to fulfill the contract. The petitioner had previously alerted NCERT to these disruptions, as evidenced in their communications and supported by an Office Memorandum from the Ministry of Finance, which recognized the ongoing situation as a force majeure event.
In light of these submissions, the court directed NCERT not to invoke the bank guarantee or take any coercive measures until the next hearing scheduled for July 20, 2026. This decision underscores the judiciary's role in ensuring government agencies comply with due process and fairness in their contractual dealings.
This case serves as a reminder of the critical balance between enforcing contractual terms and safeguarding the rights of parties involved, highlighting the judiciary's vigilance in upholding the rule of law and fair administrative practices.
Bottom line:-
Blacklisting and termination of contracts by government agencies must adhere to principles of natural justice, and separate show cause notices should be issued for blacklisting and termination. Furthermore, blacklisting, being a severe civil consequence, mandates a hearing and clear application of mind.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 9
