In a significant ruling settling conflicting precedents on the law relating to blacklisting of government contractors, a Larger Bench of the Madhya Pradesh High Court has held that blacklisting is an independent administrative action with severe civil consequences and can be challenged under Article 226 of the Constitution, notwithstanding the availability of an alternative statutory remedy in relation to disputes arising from works contracts.
The Larger Bench comprising Acting Chief Justice Vivek Rusia, Justice Vivek Agarwal, Justice Subodh Abhyankar, Justice Vinay Saraf and Justice Alok Awasthi answered a reference arising from conflicting Full Bench decisions on whether challenges to blacklisting orders must be adjudicated by the Madhya Pradesh Madhyastham Adhikaran (Arbitration Tribunal) constituted under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983.
The Court held that the power to blacklist a contractor flows from the State’s executive power under Article 298 of the Constitution and is an administrative function independent of contractual provisions. It further ruled that only the Chief Engineer or an officer of equivalent rank is competent to pass an order of blacklisting, in terms of the Public Works Department circular dated 24 March 2015. Authorities designated under the contract may merely recommend blacklisting but cannot themselves impose such a penalty.
Emphasising the gravity of such action, the Bench observed that blacklisting results in “civil and commercial death” by depriving a contractor of future business opportunities, damaging goodwill and carrying a lasting stigma. Since the financial consequences of future exclusion from government tenders cannot be quantified or ascertained in monetary terms, a challenge to blacklisting does not fall within the definition of a monetary “dispute” under Section 2(1)(d) of the 1983 Act.
The Court consequently overruled the contrary view taken in Gouri Ganesh Shri Balaji Constructions and Awasthi Brothers Construction Company, holding that those decisions incorrectly treated blacklisting as merely a consequential relief to contractual disputes. It clarified that while claims arising from termination of a works contract may be referable to the statutory tribunal, a challenge to blacklisting is not, as the tribunal lacks the power to grant declaratory relief or set aside administrative orders.
The Larger Bench further held that writ petitions challenging blacklisting or composite orders of termination and blacklisting are maintainable, particularly where allegations of violation of natural justice or infringement of fundamental rights are raised. It also clarified that the 2025 amendments to the Madhya Pradesh Madhyastham Adhikaran Adhiniyam do not alter this legal position.
The reference arose from a writ petition which challenged an order of the Indore Municipal Corporation terminating its works contract, blacklisting it for three years and forfeiting its performance security. The matter was referred to a Larger Bench owing to conflicting judicial precedents on the maintainability of such challenges.
