When Breach Of Contract Is Explained, Harsh Penalties Like Blacklisting Which Impacts Others' Employment Should Not Be Imposed: Punjab & Haryana HC

The Punjab & Haryana High Court has made it clear that when breach of contract is bonafidely explained then harsh penalty like blacklisting of company should not be imposed since it  impacts on employment and business of people associated.

Justice Sureshwar Thakur and Justice Vikas Suri said, “ Where breach to a concluded contract becomes bonafidely explained besides when a bonafide dispute is raised by the person/entity concerned, against his/its purportedly omitting to perform its contractual obligation, thereupons, the appositely made penalty of blacklisting/debarment, thus ought not to be resorted to.”

The Court further said that “the penalty of debarring or blacklisting as becomes imposed upon a person or an entity but has drastic consequences, as therebys, it adversely affects the business of the person or the entity concerned besides materially prejudices the employments of the persons who render employment under it/them.”

The bench explained that the derelict conduct or the omission of the person or the entity concerned, is to “be so palpably abhorrent, so as to justify the invocation of the drastic remedy of blacklisting/debarment.”

M/s Floral Electrical Private Limited  filed a writ petition challenging a blacklisting order issued by Haryana Vidyut Prasaran Nigam Limited (HVPNL), which bars the company from conducting business with it for one year.The petitioner further sought directions for removing the blacklisting status in the records. 

HVPNL issued an e-tender for constructing a 132 KV substation at Hansi, with a submission deadline of 03.03.2020. 

M/s Gupta Industries (Respondent No. 2) entered into a Joint Venture (JV) Agreement with M/s Floral Electricals Pvt. Ltd. (the petitioner) on 02.03.2020, and submitted a bid accordingly.

Under the JV agreement, both partners were jointly and severally liable for fulfilling the contract. However, the petitioner's Board resolved on 10.06.2020 that while it would join the JV, all financial and contractual responsibilities would rest solely with M/s Gupta Industries. A work order was subsequently issued by HVPNL in favor of both parties, with a project completion timeline of 18 months.

After the contract was awarded, M/s Gupta Industries began work but disputes arose with HVPNL over timely and proper execution. Arbitration was initiated, but only Gupta Industries filed the claim. HVPNL objected, stating the contract was with a joint venture. An attempt to amend the claim to reflect the JV with Floral Electrical Pvt. Ltd. was rejected by the arbitrator on 07.03.2024. 

After hearing the submissions, the Court emphasized that blacklisting is a harsh and serious penalty that should only be used in extreme cases of misconduct, not for ordinary contractual breaches or disputes.

The bench said that, Blacklisting requires objective justification and must aim to protect public interest and it should not be imposed where genuine contractual disputes exist or where the conduct isn't egregious.

It highlighted that, “That a slipshod and hurried manner/approach, thus to impose the drastic penalty of debarment/blacklisting rather is to be avoided, as the same may be disproportionate, to the otherwise resolveable dispute through the invocation of an arbitration remedy, whereupons, also the apposite omission may become ultimately condoned.”

In the light of the above, the Court found that blacklisting of the company was “unjustified”.

Consequently the impugned blacklisting order was quashed, and the respondent was directed to remove the blacklisting status from the petitioner's record.

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.

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