Order Must Align with Show Cause Notice and Ensure Fair Hearing

The Hon’ble High Court of Rajasthan in the case of M/s Mdindia Health Insurance Pvt. Ltd. v State of Rajasthan & Ors., (2025:RJ-JP:29312), dated July 31, 2025, has held that an order of blacklisting or debarment cannot extend beyond the scope of the show cause notice and must be passed only after strict compliance with the principles of natural justice, as such orders have grave civil consequences and directly affect the right to carry on business.

In this case, the petitioner, Mdindia Health Insurance (TPA) Pvt. Ltd., was appointed as a third-party administrator under the Rajasthan Government Health Scheme pursuant to a tender-based process in 2022. Following its selection, contract was executed, initially for two years, and the arrangement was extended on multiple occasions owing to satisfactory performance. However, a show cause notice dated May 20, 2025, was issued alleging deficiencies in its functioning. The petitioner responded on May 23, 2025, seeking access to relevant documents and the online portal to enable a comprehensive reply. The Rajasthan State Health Agency, without considering this request or affording an opportunity of hearing, issued an order on June 12, 2025, blacklisting the petitioner for a period of three years, thereby excluding it from future participation in tender processes.

The Court found that the impugned order travelled beyond the scope of the show cause notice by introducing grounds not disclosed earlier, thereby depriving the petitioner of an opportunity to respond. Referring to M/s Techno Prints v. Chhattisgarh Textbook Corporation, (2025 INSC 236), dated February 12, 2025, the Court reiterated that an adjudicating authority cannot go beyond the charges mentioned in the notice, as such action is contrary to law and violative of Article 14 of the Indian Constitution, 1950. It further underscored that blacklisting entails serious civil consequences since it disqualifies an entity from bidding in future tenders and thereby curtails its constitutional right to carry on business. Although the issuance of a show cause notice satisfied the first requirement of natural justice, the denial of a meaningful opportunity of hearing and the expansion of charges in the final order rendered the action arbitrary. Accordingly, the order of blacklisting was quashed, with liberty granted to the respondents to initiate fresh proceedings by issuing a detailed notice and deciding the matter thereafter in strict compliance with law.

This judgment reaffirms that blacklisting in public procurement is a severe sanction, valid only when confined to the show cause notice and preceded by a fair hearing.