Can state blacklist contractors arbitrarily? Chhattisgarh high court explains limits of govt power

The Chhattisgarh high court has set aside a three-year blacklisting of several contractors involved in Jal Jeevan Mission (JJM) projects, ruling that such a severe penalty cannot be sustained without a clear, reasoned finding that they had deliberately submitted forged documents.The petitioners, including M/s A.K. Construction, were awarded various contracts for water and sanitation projects in Chhattisgarh. The dispute arose when the respondent authorities alleged that the petitioners had submitted fake and fabricated technical experience certificates to qualify for these tenders.Following these allegations, the authorities initiated proceedings to cancel the tenders and blacklist the firms. A previous writ petition, WPC No. 1263/2025, resulted in an order dated 7 March 2025, which quashed the show-cause notices issued by the authorities on the grounds of pre-determination, while granting the State liberty to take a fresh decision following due process. Despite subsequent legal challenges, including a writ appeal and a review petition, the matter was remanded for a fresh decision by the Apex Committee of the State Level Water and Sanitation Mission. On 2 December 2025, the committee decided to maintain the earlier order dated 20 December 2024, terminating the agreements and blacklisting the petitioners for three years. The petitioners challenged this decision in the High Court. Counsel for the petitioners argued that the authorities had acted in a prejudiced manner, asserting that the personal hearing granted was merely an "eyewash" as the superior authorities had already directed action against the petitioners. The petitioners maintained that the experience certificates submitted were genuine, citing conflicting information from the issuing authority, Municipal Council, Karad, and noting that a criminal court had granted pre-arrest bail to a respondent (M/s Vijay V. Salunkhe), which they claimed cast doubt on the "fake certificate" allegation. Furthermore, the petitioners claimed they had completed a significant portion of the work—ranging from approximately 43% to 52% across different agreements—and had purchased materials worth ₹7–8 crore. They also contested the applicability of the arbitration clause, arguing the dispute over blacklisting and termination fell outside its scope. The State argued that the petitioners had used false and fabricated documents to qualify for the technical bids, a fact established upon verification with the Municipal Corporation, Karad. The respondents contended that the petitioners had been afforded a full opportunity for a personal hearing on 28 November 2025, but failed to provide any new facts or deny the allegation that the certificates were fake. The committee's minutes recorded that the contractors had essentially admitted the documents were fake and had even lodged police reports regarding the matter. Consequently, the committee concluded that the tender process was vitiated by fraud, justifying the cancellation of the tenders and the blacklisting of the firms. The High Court noted that the primary issue was whether the respondents had conducted a fair and independent decision-making process following the court's earlier remand. While the court observed that blacklisting a tenderer carries serious civil consequences, affecting reputation and livelihood, and therefore must satisfy tests of fairness and proportionality, it also acknowledged the seriousness of the allegation regarding the use of fake documents. The court examined the rival submissions, specifically the conflict between the petitioners' assertion of genuineness and the respondents' claim of fabrication. The court noted the previous order had specifically required an unbiased exercise, and the current dispute centered on whether the authorities had simply reiterated their previous, potentially biased, conclusions. The judgment reaffirms that any action as severe as blacklisting requires strict adherence to the principles of natural justice and reasoned decision-making. It underscores that while authorities have the right to penalize fraud in tender processes, such actions must not be the result of a pre-determined opinion, especially when directed by superior authorities to subordinate bodies. The court, in its order dated 28 February 2026, set aside the blacklisting order, noting that it did not meet the required standards of fairness and proportionality. Regarding the remaining claims—such as the continuation of the contract, payment of alleged dues, and valuation of work executed—the court held these disputes arise from the contractual agreement and fall outside the scope of judicial review under Article 226. The petitioners were granted liberty to approach the competent Civil Court or invoke the dispute-resolution mechanism provided in their agreements. This judgment highlights the judiciary's role in protecting the procedural rights of contractors against arbitrary administrative actions, even when allegations of misconduct are serious. It clarifies that while the State has the power to act against fraudulent practices, it must do so within the bounds of due process, while keeping purely contractual grievances within the realm of established dispute-resolution channels.