Court: Supreme Court of India
Bench: Justice PS Narasimha and Justice Alok Aradhe
Case: M/S A.K.G. Construction and Developers Pvt. Ltd. v. State of Jharkhand & Ors.
Date: April 2, 2026
Subject: Contract Law | Blacklisting | Natural Justice | Audi Alteram Partem
Background:
The Supreme Court set aside a blacklisting order issued by the Jharkhand Drinking Water and Sanitation Department against a contractor, holding that blacklisting cannot automatically follow from termination of a contract and requires an independent show cause notice with proper application of mind.
Facts of the Case:
In March 2023 the Appellant M/S A.K.G. Construction and Developers Pvt. Ltd. was awarded a contract by the Jharkhand Water and Sanitation Department for construction of an Elevated Service Reservoir (ESR).
In June 2024 the top dome of the under construction reservoir collapsed. While the contractor attributed the collapse to an unexpected cyclone and offered to reconstruct at its own cost, multiple inquiry reports including those supported by technical inputs from premier institutions found serious construction deficiencies and deviation from approved designs.
Following a show cause notice dated June 4, 2024, the department passed an order on August 23, 2024:
- Terminating the contract
- Blacklisting the contractor for five years
- Forfeiting the security deposit
- Cancelling the contractor’s registration
The contractor’s appeal and writ petition were dismissed by the Jharkhand High Court, leading to the present appeal before the Supreme Court.
Supreme Court Held:
While upholding the termination of the contract, the Court set aside the blacklisting order on the following grounds:
- Blacklisting is Not Automatic:
Blacklisting is a distinct and far more serious action than termination of contract. It is not a logical or automatic consequence of termination. Even after deciding to terminate a contract, the department must independently decide whether to exercise the power of blacklisting. - Independent Show Cause Notice Required:
Before blacklisting a contractor, the department must issue a specific show cause notice proposing blacklisting and calling upon the contractor to explain why such an order should not be passed. The notice must clearly indicate the proposed decision to blacklist. - Principles of Natural Justice Must Be Followed:
The blacklisting order in this case was found to be arbitrary as it showed no application of mind, disregarded the mandatory principle of audi alteram partem (right to be heard) and failed to precede with a proper show cause notice for blacklisting specifically. - Serious Consequences of Blacklisting:
The Court noted that a blacklisting order transcends the existing contract and debars the contractor from all future contracts for the blacklisting period. Given such serious consequences, strict compliance with natural justice principles is mandatory.
The Court relied on UMC Technologies Pvt. Ltd. v. Food Corporation of India (2020) to emphasize that a contractor must be given a clear opportunity to defend itself before being blacklisted based on the authority’s objective satisfaction.
Result:
- Termination of contract — Upheld
- Blacklisting order — Set aside
- Blacklisting declared illegal, arbitrary and unreasonable
- Declaration of blacklisting ceased to operate with immediate effect
