Contractors cannot be blacklisted over deficiencies, delays: Meghalaya High Court

The Meghalaya High Court recently set aside the State's decision to blacklist a private contractor after the Court found that the drastic measure was resorted to over a contractual dispute [RMSI Private Limited v. State of Meghalaya and Others]..Acting Chief Justice H S Thangkhiew reiterated that the State cannot blacklist a contractor over contractual disputes and that blacklisting can only be resorted to when there is fraud involved.The Court observed that the dispute between the parties in this case could not be deemed fraudulent or harmful to the public interest to a degree that would justify blacklisting or debarring the contractor (petitioner)."No doubt issues have arisen which has caused a setback to the project but in the considered view of this Court the blacklisting of the petitioner is disproportionate to the infractions as alleged," the Court added in its September 9 order.The Court further noted that the dispute could be resolved by resorting to the inbuilt dispute resolution mechanism (arbitration) mentioned in the contract itself."The penalty of blacklisting inflicted upon the petitioner is deemed unreasonable and disproportionate and the impugned order ... is accordingly set aside and quashed," the Court ordered..By way of background, the petitioner, RMSI Private Limited had been awarded a contract in 2019 by a State government company, namely the Meghalaya Basin Management Agency (MBMA). The contract was for the development of a Management Information System (MIS) to support the implementation of the Meghalaya Community-Led Landscape Management Project.The project proceeded smoothly during the initial stages. However, issues arose in 2022 regarding the fifth stage of the contract.The MBMA issued a letter to the contractor on February 23, 2023, alleging a breach of contract. After several exchanges and an in-person meeting, MBMA expressed dissatisfaction with RMSI's performance and raised issues about the functioning of the mobile application for the MIS, and also the date of raising of invoices which the State alleged violated the terms of the contract.Subsequently, on July 25, 2024, the State government blacklisted RMSI for three years and canceled all its existing contracts. The State also demanded a refund of the entire contract amount from RMSI. RMSI filed a writ petition challenging this order..Counsel for RMSI argued that the dispute if any, amounts to an ordinary breach of contract and that the decision to blacklist the company was unjustified. The State countered that the services and products rendered by the RMSI were far from satisfactory for a public project and that the contractor had caused a loss of public benefits..The Court found that despite certain glitches, the project had progressed till the fourth stage and that the disputes between the parties only concerned allegations of a deficiency in the services provided by RMSI.It concluded that the dispute did not warrant the blacklisting or debarment of the contractor and proceeded to set aside the State's decision. .Senior Advocate N Mozika with advocates Philemon Nongbri, A Mishra and N Rewalia appeared for RMSI.Advocate General A Kumar and Government Advocate A Thungwa represented the State..[Read Order]