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Madhya Pradesh High Court five judges bench holds that a challenge to an order of blacklisting is not referable to the statutory arbitration
A 5 (five) judges bench at Indore, Madhya Pradesh High Court (“MP HC ”), in Nitin Enterprises through Nitin Lodwal vs Urban Administration and Development Department and Ors.[1], by a majority of 4:1, held that a challenge to an order blacklisting a contractor from future government contracts does not constitute a ‘dispute’ under Section 2(1)(d)[2] of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (“Adhiniyam 1983”). Accordingly, such a challenge is not referable to the statutory arbitral tribunal (“Tribunal”) constituted under Adhiniyam 1983.
The power to blacklist is an inherent executive power traceable to Article 298[3] of the Constitution of India (“Constitution”). It is administrative in nature, and the resulting loss is neither computable nor ascertainable. Accordingly, the contractor’s remedy lies in writ jurisdiction under Article 226/227,[4] of the Constitution, including where the order is composite.
The reference arose out of divergent views expressed by 2 (two) coordinate full bench decisions of the MP HC, Viva Highways Limited vs M.P. Road Development Corporation Limited[5] (“Viva Highways”) and Gouri Ganesh Shri Balaji Constructions “C” Class Contractor vs Executive Engineer, PWD[6] (“Gouri Ganesh”), on whether the loss occasioned by blacklisting is ascertainable in money. Consequently, Viva Highways was affirmed and Gouri Ganesh was held not to have laid down the correct law on the point.
Brief facts
Nitin Enterprises, a proprietorship firm registered as a contractor with the Public Works Department, was the successful bidder in a tender dated February 15, 2019, issued by the Indore Municipal Corporation (“Indore Corporation”) for cement concrete work. The Indore Corporation accepted its tender on March 23, 2020; the firm furnished a performance bank guarantee of INR 2,64,300 (Indian Rupees two lakh sixty-four thousand and three hundred), and the work order of the same date required completion within 240 (two hundred and forty) days from the date of the letter of intent.
The firm did not complete the work within that period. On October 30, 2020, the Superintending Engineer, Public Works, of the Indore Corporation terminated the agreement for violation of the model code of conduct and, by the same composite order, blacklisted the firm for 3 (three) years and forfeited the fixed deposit receipts. The firm’s representation remained undecided. Following a fresh notice inviting tender for the same work, the firm filed a writ petition, to which the Indore Corporation objected that the contract was a ‘works contract’ within Section 2(1)(i)[7] of the Adhiniyam 1983. It further argued that, in view of Gouri Ganesh, the firm’s remedy lay before the Tribunal.
The legal position prior to the reference
- Viva Highways: A full bench of the MP HC held that the legislature had deliberately confined the definition of ‘dispute’ to a ‘claim of ascertained money’. It clarified that ‘ascertained’ connotes an amount that is already known, fixed, determined or quantified, and is distinct from ‘ascertainable’. Accordingly, where there is no claim for ascertained money, the difference falls outside the scope of Section 2(1)(d) of Adhiniyam 1983 and cannot be relegated to the Tribunal.
- Gouri Ganesh: A subsequent full bench of the MP HC held that the expression ‘ascertained amount’ in Section 2(1)(d) of Adhiniyam 1983 includes the amount of consequential relief, which an aggrieved person must claim in the reference.
The reference to the larger bench
By an order dated July 20, 2021, the division bench of the MP HC recorded its disagreement with Gouri Ganesh and requested a larger bench. It held that while loss on termination is computable, loss arising out of blacklisting cannot be computed in money. This is because no one can ascertain how many notices inviting tender would be issued during the period of debarment, or what they would be worth.
Issues
Whether the loss arising out of an order of blacklisting can be ascertained or is ascertainable and hence falls within the ambit of Section 2(1)(d) of the Adhiniyam 1983. If not, whether Gouri Ganesh correctly opined that a contractor has a remedy before the Tribunal against an order of blacklisting?
Whether a writ petition challenging a composite order of termination of contract and blacklisting is maintainable where the contractor has no remedy against the order of blacklisting before the Tribunal, despite having a statutory remedy under the Adhiniyam 1983 against termination of the works contract?
Findings and analysis
The source of the power to blacklist falls into 3 (three) categories: (a) executive power under Article 298 of the Constitution; (b) a statutory rule or policy; or (c) a clause of the contract. The power flows from the power to carry on trade or business under Article 298 of the Constitution, which carries the power to deny business to a particular person, and a contractual clause merely recognises it. The debarment may be ordered before contract, during its currency or after completion if fraud is later discovered.
Blacklisting restrains participation in future public tenders and travels beyond the department which orders it.
Compensation for breach of contract may be awarded only under Section 73[8] of the Indian Contract Act, 1872. The provision permits recovery of losses that actually arise and naturally flow from the breach, while excluding remote or indirect losses. Loss of future business opportunity is remote, relates to transactions with third parties outside the contractual matrix and depends on inherently uncertain contingencies. The MP HC expressly declined to record any finding on the method of computing speculative losses. It held there is no formula recognised in Indian law for computing uncertain future losses, and the losses are accordingly neither ascertained nor ascertainable.
The loss arising from blacklisting is not ascertainable and, therefore, does not give rise to a monetary claim. Accordingly, the Tribunal cannot grant relief simpliciter against an order of blacklisting. Section 7-A[9] of the Adhiniyam 1983, which requires the entire claim arising under a works contract to be included in the reference, is procedural in nature and cannot expand the Tribunal’s substantive jurisdiction. The Tribunal is a creature of statute which cannot declare rights, set aside executive orders or grant perpetual injunctions, and is not a civil court; a declaration annulling blacklisting is a public law remedy it cannot grant.
The blacklisting order being administrative and required to conform to natural justice, fairness and Article 14 of the Constitution, a challenge lies in writ jurisdiction. A writ may be entertained even against a composite order, except where evidence must be recorded to decide the validity of the blacklisting.
The separate and dissenting opinions
Justice Subodh Abhyankar, also a judge in Gouri Ganesh, concurred ‘with minor variations’, holding that paragraph 55 of Gouri Ganesh does not enunciate the law properly, and that a contractor cannot be compelled to seek a declaration against blacklisting together with a monetary claim as consequential relief. He further held that where a monetary claim over INR 50,000 (Indian Rupees fifty thousand) is made and elaborate evidence is required, the appropriate remedy is the Tribunal.
Justice Vivek Agarwal dissented. In his view the power to contract carries the incidental power to cancel it and to suspend or blacklist the contractor, so that the blacklisting emerges from the contract itself. Article 298 of the Constitution is not attracted where the State deals with contracts entered into by it. A breach of contract is remedied under the law of contract and not in writ jurisdiction unless a constitutional or statutory provision is violated.
He further held that a claimant may value his own declaratory claim and that bifurcation of a single cause of action between two fora is impermissible.
Conclusion
For contractors and public authorities in Madhya Pradesh, the judgment settles a forum question that has divided the High Court since 2018. A blacklisted contractor can no longer be turned away from the writ court on the grounds that its remedy lies before the Tribunal and need not frame a monetary claim in order to challenge the order. Termination, forfeiture and other money claims continue before the Tribunal, however, the challenge to blacklisting does not.
2 (two) points have immediate practical consequences. First, an order for blacklisting must come from the Chief Engineer or an officer of equivalent rank, an authority designated under the contract. Public authorities would do well to review their delegations and approval before issuing such orders. Second, where validity turns on disputed facts requiring evidence, the writ court may decline to enter the dispute.
The MP HC held that blacklisting is an executive power under Article 298 of the Constitution which operates in rem. It further held that the resulting loss cannot be quantified under Section 73 of the Indian Contract Act, 1872. These findings are not necessarily confined to Madhya Pradesh may have persuasive value in other cases where a blacklisting dispute is sought to be referred to arbitration.
This Prism is prepared by:
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Amar Gupta |
Divyam Agarwal |
Pranav Tanwar |
Arjun Narang |
For more details, please contact km@jsalaw.com.
[1] Writ Petition No. 9623 of 2021, (reserved on July 7, 2026, and pronounced on August 7, 2026); Neutral Citation No. 2026:MPHC-IND:21986
[2] Section 2(1)(d) defines ‘dispute’ to mean a “claim of ascertained or ascertainable money valued at Rupees 50,000 or more relating to any difference arising out of the execution or non-execution of a works contract or part thereof”.
[3] Article 298 of the Constitution empowers the Union and the States to carry on any trade or business and to make contracts for any purpose. In plain terms, it is the constitutional source of the Government’s ability to do business and, on this judgment, of its power to decide with whom it will not do business.
[4] Article 226 of the Constitution empowers a High Court to issue writs to enforce fundamental rights or for any other purpose, and Article 227 gives it supervisory control over courts and tribunals within its territory. In plain terms, this is the High Court’s power to examine, and if necessary, set aside, an unlawful order of a public authority.
[5] 2017(2) MPLJ 681
[6] 2018(3) MPLJ 163
[7] Section 2(1)(i) of the Adhiniyam 1983 defines a ‘works contract’ as an agreement in writing, letter of intent or work order for the execution of work relating to the construction, repair or maintenance of buildings, dams, canals, roads, bridges and similar works. In plain terms, it identifies the kind of government construction contract to which the enactment applies.
[8] Section 73 of the Indian Contract Act, 1872 provides that when a contract is broken, the injured party can claim monetary compensation for any loss or damage caused by the breach.
[9] Section 7-A of the Adhiniyam 1983 requires every reference petition to include the whole of the claim which a party is entitled to make under the works contract and provides that a claim omitted or relinquished cannot be raised afterwards; sub-section (3) allows a dispute arising after the petition is filed to be taken up later. In plain terms, a contractor must bring its entire claim to the Tribunal in one go or lose what it leaves out.
