In a significant ruling, the Punjab & Haryana High Court emphasized that blacklisting as a penalty should not be imposed when a breach of contract is bona fide and legally explained, especially if the dispute is already subject to arbitration. This judgment came in response to a writ petition filed by M/s Floral Electrical Private Limited against Haryana Vidyut Prasaran Nigam Ltd. (HVPNL).
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Case Background
M/s Floral Electrical Pvt. Ltd. challenged HVPNL’s blacklisting order dated 24 May 2024, which barred the company from engaging in any business with HVPNL for one year, either individually or in partnership. The order followed the termination of a contract for constructing a 132 kV substation at Hansi, originally awarded to M/s Gupta Industries (Lead Partner) and M/s Floral Electricals (JV Partner).
The work order, worth ₹17.2 crore, was issued on 01 February 2021, with a contractual completion period of 15 months. After time extensions, the final completion date was set as 30 August 2022. However, HVPNL alleged that major civil and electrical works remained incomplete, attributing the delay to the contractor’s lethargic approach.
Due to ongoing delays and unresolved disputes, HVPNL issued multiple notices, culminating in a show-cause notice under Clause 44 of the General Conditions of Contract. The firm was asked to justify why actions like blacklisting, termination, and forfeiture of bank guarantees should not be taken.
Though the joint venture sought several hearings and cited various issues including COVID-19 disruptions, inflation, local resistance at the worksite, delay in payment of price variation, and fund shortages, HVPNL remained unsatisfied.
A stay order on termination was granted by the sole arbitrator on 11 December 2023, but this was vacated on 7 March 2024. The arbitrator also rejected the amendment application filed by M/s Gupta Industries to include the JV name in the arbitration proceedings, citing lack of board authorization from Floral Electricals.
M/s Floral Electricals contended that:
- They were not the lead partner in the JV.
- All financial and operational responsibilities were to be handled solely by M/s Gupta Industries, as resolved by their board.
- Despite this, the petitioner was penalized equally without sufficient grounds or adherence to natural justice.
They sought the removal of the blacklisting status from all official records.
HVPNL maintained that:
- The tender conditions clearly stated that all JV partners are jointly and severally liable.
- The breach of contract affected not only the project timeline but also public interest by delaying power supply.
- Clause 44 of the contract empowered them to impose penalties including termination, blacklisting, and forfeiture of guarantees.
The division bench of Justice Sureshwar Thakur and Justice Vikas Suri made critical observations:
“Where breach to a concluded contract becomes bonafidely explained besides when a bonafide dispute is raised by the person/entity concerned… the appositely made penalty of blacklisting/debarment, thus ought not to be resorted to.”
The Court further noted:
“The penalty of blacklisting… has drastic consequences, as it adversely affects the business of the entity concerned besides materially prejudicing the employment of persons who render services under them.”
The Court emphasized that such punitive measures should be reserved for egregious or malicious conduct, not for resolvable contractual breaches, especially when arbitration is pending.
Citing Supreme Court precedents, the Court reiterated:
“Debarring a person even for a fixed time can result in civil death and commercial ostracization. Hence, it must follow from equally grave misconduct.”
It also criticized HVPNL for acting in a hurried and disproportionate manner, without completing arbitration or providing full opportunity to be heard.
The High Court held that:
- The conduct of the petitioner was not “so palpably abhorrent” to warrant blacklisting.
- Arbitration was the appropriate platform to resolve the dispute.
- The blacklisting order was premature and violated the principle of natural justice.
“The impugned letter dated 24.05.2024 is quashed. The respondents are directed to remove/delete the blacklisting status from the records of the petitioner company.”
Mr.SanjayKaushal,Sr.Advocatewith Ms. Dawelpreet Kaur, Advocate Mr. Rajan Chawla, Advocate, Ms. Bhawna Thakur, Advocate, Mr. Munish K. Garg, Advocate for the petitioner.
Mr. Ankur Mittal, Advocate, Ms. Kushaldeep Kaur Manchanda, Advocate Ms. Gurcharan Kaur, Advocate
Mr. Sandeep Chabbra, Advocate and Ms. Saanvi Singla, Advocate for respondent No. 1.
Title: M/S FLORAL ELECTRICAL PVT. LTD. v. HARYANA VIDYUT PRASARAN NIGAM LTD. AND ANR.
