Blackballed by public sector firms

The government must respond to the call of the Supreme Court to set guidelines related to blacklisting of companies

The government and public sector agencies are believed to be keeping confidential files of firms which are blacklisted. In international trade, especially defence deals, they are even more ‘classified’. But the consequences for a contractor, manufacturer, supplier or consultant are disastrous. The government holds the largest number of contracts. When one public sector undertaking blacklists a contracting firm, others also keep them out of commercial dealings. They become untouchable even for private companies. The only way to remove the stigma is to move the court. However, prolonged litigation itself casts a long shadow on the firm and it would not go away even after a pyrrhic victory.

In recent weeks, some high courts have quashed blacklisting orders by PSUs as they were found to be arbitrary or without adequate reasons to justify the harsh measure. The common allegations against a contracting firm is that it had manipulated eligibility conditions, used names of joint venture partners to get the contract, applied undue influence to get the desired result or withdrawn bids at the crucial juncture. Even after the work is given, it could be blacklisted for deficiency in performance, delay in delivery or abandonment of the project.

The National Highways Authority of India (NHAI), which is a party in several cases, argued earlier this month in the Delhi high court that courts should not interfere in such cases as it had carefully considered all relevant facts and it was competent to do so. The NHAI had blacklisted a firm for three years for allegedly misrepresenting its experience in road building. The firm contended that it was not given a hearing before condemning it. The high court quashed the NHAI order stating that “blacklisting entails serious consequences in terms of its implications, which is why it should be kept in mind that apart from objectivity in terms of decision-making there must also be a clear understanding that cases of this nature would also require the satisfaction beyond just minimum requirements… it would be required that the authority observes a higher standard of objective fairness and must attempt to ensure that justice is rendered in their maximum capacity”.

Meanwhile, the Bombay high court set aside the blacklisting of a foreign computer firm by Central Bank of India and Punjab National Bank. There was a delay in the supply of computer goods as that country had suffered heavy floods. The high court set aside the penal action based on the facts of the case.

Since, the contractors depend heavily on PSUs for business, they could be compelled to sign iniquitous agreements. The NHAI made one firm sign a tender document that gave the government corporation the right to terminate the contract followed by automatic blacklisting of the party for two years without hearing it. The Delhi high court declared that such “automatic and unilateral” action affected the firm’s fundamental right to trade.

The root cause of such conflicts is that there is no uniform rule or a consolidated list of grounds to blacklist firms. The Supreme Court has detected this flaw in its recent orders. Last week, the Supreme Court asked the central government to come up with proper guidelines within two weeks to blacklist builders who are found to have constructed buildings in Noida city against the sanctioned plan. Such guidelines should cover not only construction business but also other sectors, the court observed.

In another case, the court had asked Bharat Sanchar Nigam Ltd to lay down guidelines for blacklisting firms that respond to tenders and undertake projects. In that case, the firm that supplied optical fibre was debarred “for all times”. The Bombay high court upheld the blacklisting. But the Supreme Court set aside the high court judgment on appeal.

It stated that permanently debarring the firm, which survives on supplies to BSNL alone, was too harsh. It felt there should be some “broad guidelines” to provide objectivity and transparency in imposing penalty on delinquent firms. In spite of such judicial counsel, little has been done to instill confidence in the contracting parties and stop allegations of corruption. The recent cases give the government an opportunity to fill this gap and this should be done as soon as possible.