CASE NAME: M/S A.K.G. Construction and Developers Pvt. Ltd V. State of Jharkhand & Ors. CASE NUMBER: CIVIL APPEAL NO(S). __ OF 2026 (Arising out of SLP (C) No. 22669 of 2025)
COURT: SUPREME COURT OF INDIA
DATE: 02 April 2026
CORAM: HON’BLE JUSTICE PAMIDIGHANTAM SRI NARASIMHA, ALOK ARADHE
FACTS
In this case, the appellant, M/s AKG Construction and Developers Private Limited, is a registered contractor with the Water and Sanitation Department for the construction of an elevated service reservoir on March 6, 2023. On June 1, 2024, there was a collapse of the top dome of the reservoir constructed by the appellant.
The Water and Sanitation Department alleged that the collapse was due to negligence as well as low quality of work done by the appellant. Due to this, the appellant’s contract was terminated and the contractor was blacklisted. This action was challenged by the appellant.
ISSUES
- Whether the notice mentioned reasonable grounds for blacklisting?
- Whether principles of natural justice have to be followed while terminating and blacklisting a person?
LEGAL PROVISIONS
- Rule 10.1.8 – Failure to execute the work as per the agreement and prescribed specifications.
- Rule 10.1.15 – Doing work of poor quality.
(Both under the Contractor Registration Rules, 2012)
- The following order is passed in light of Rule 10.3 and Rule 10.4 of the Contractor Registration Rules, 2012.
- Clause 59 of the General Conditions of Contract (GCC) deals with termination of contract and does not provide for a prior notice.
- Rule 10 of the Contractor Registration Rules, 2012, dealing with blacklisting, mandates the issuance of a show cause notice before blacklisting a contractor on the ground of misconduct.
ARGUMENTS
APPELLANT
The order of termination as well as blacklisting is illegal and arbitrary. The respondent not only terminated the contract but also unreasonably blacklisted the appellant.
After the collapse of the top dome, the department constituted a three-member enquiry committee, which submitted a report stating that the collapse was due to negligence and poor quality of work. However, the appellant argued that the principle of AUDI ALTERAM PARTEM was not followed, as no proper opportunity was given before the decision of blacklisting.
RESPONDENT
As per Clause 59, termination of the contract does not require issuing a notice. However, as per Rule 10, for blacklisting a person on the ground of misconduct, notice has to be issued.
On June 4, 2024, a notice was issued to the appellant, in which it was specifically mentioned “why action should not be taken against it as per the rules.” This clearly implies that the department gave an opportunity to the contractor. Even three days’ time was given to the contractor to submit a reply.
ANALYSIS
- Rule 10 not only affects the existing contract but also bars future business transactions for a certain period (for example, 5 years). Therefore, it has serious consequences.
- Termination and blacklisting are completely different and independent in nature. Blacklisting is neither an automatic nor a logical consequence of termination. Even if termination is valid, the authority still has to separately decide on blacklisting.
- Blacklisting affects both existing contracts and future contracts. Therefore, a specific notice is mandatory. As per Rule 10.5, principles of natural justice must be followed. Before taking such action, the authority must inform the affected party through a proper notice. The notice must clearly mention the grounds and the penalty without any ambiguity.
- In Erusian Equipment & Chemicals Ltd. v. State of West Bengal (1975) 1 SCC 70, it was stated that blacklisting casts a slur and acts as an instrument of coercion. It also creates a disability, so the authority must have objective satisfaction.
- In UMC Technologies Pvt. Ltd. v. FCI (2021) 2 SCC 551, it was held that proper notice and reasonable opportunity must be given, following principles of natural justice.
- In M/s Techno Prints v. Chhattisgarh Textbook Corporation 2025 INSC 236, it was observed that the idea of blacklisting must be clear in the show-cause notice itself.
Another important aspect discussed is the difference between possession and exercise of Inherent power. ‘The authority may possess the power, but its exercise must be reasonable and justified.’
JUDGMENT
The Court held that the show-cause notice issued by the authority was not sufficient, as it did not clearly mention the grounds for blacklisting. The notice must specifically state why blacklisting is being proposed. The Court laid down a test: “WHETHER THE NOTICE CLEARLY MAKES OUT A CASE FOR BLACKLISTING.” A fresh notice has to be issued by the authority. Till then, the blacklisting ceases to exist. Any contracts entered into by the contractor during this period will remain valid.
CONCLUSION
If a person is blacklisted, the aggrieved party can approach the High Court under Article 226. Blacklisting has serious consequences as it affects reputation and future opportunities.
Therefore, it must be done carefully, with proper reasoning and by following principles of natural justice. It should not be done on unreasonable grounds, as it affects not only legal rights but also the reputation of the person.
“PRIME LEGAL is a National Award-winning law firm with over two decades of experience across diverse legal sectors. We are dedicated to setting the standard for legal excellence in civil, criminal, and family law and Contract law.”
WRITTEN BY: PRANAVI KOLLU
read the copy of judgement here
M_S A.K.G. CONSTRUCTION AND DEVELOPERS PVT. LTD VERSUS STATE OF JHARKHAND
