When it comes to the penalty of blacklisting, the classic formulation of principles in regard to blacklisting have been laid down in Erusian Equipment & Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70.
“Equality of opportunity should apply to matters of public contracts. An ordinary individual can choose not to deal with any person… Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with Government because of the order of blacklisting. A person who has been dealing with Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality.
GOVERNMENT IS A GOVERNMENT OF LAWS AND NOT OF MEN.
The activities of Government have a public element and, therefore, there should be fairness and equality… State need not enter into any contract with any one but if it does so, it must do so fairly without discrimination and without unfair procedure.
Sometimes duty to act fairly can also be sustained without providing opportunity for an oral hearing. It will depend upon the nature of the interest to be affected, the circumstances in which a power is exercised and the nature of sanctions involved therein.
Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.”
– Hon’ble Justice R.F. Nariman, Medipol Pharmaceutical India Pvt. Ltd. v. Post Graduate Institute of Medical Education & Research, [Civil Appeal No. 2903 of 2020].
Also see, VETIndia Pharmaceuticals Ltd. v. State of Uttar Pradesh, [Civil Appeal No. 3647 of 2020] decided on 06.11.2020 and UMC Technologies Private Limited v. Food Corporation of India, [Civil Appeal No. 3687 of 2020] decided on 16.11.2020 and State of Odisha v. M/s. Panda Infraproject Ltd., [Civil Appeal No. 1083 of 2022] decided on 24.02.2022.