Termination Without Considering Reply Violates Natural Justice: Supreme Court2013 in Haryana Securities v. ESIC Hospital Quashes Security Contract Termination. TheSupreme Court in Haryana Securities & Services v. ESIC Hospital held that terminationof security services contract without considering contractor’s detailed reply to showcause notice violates principles of natural justice. The Court on 29.10.2013 set asidetermination dated 30.07.2013 and penalty order dated 11.09.2013, holding authoritiescannot bypass reply and impose penal consequences. Appellant was issued noticedated 04.08.2012 alleging non-compliance with labour laws, less deployment, no policeverification. Detailed reply dated 17.08.2012 gave bio-data of 32 guards, policeverification, EPF/ESIC numbers. Yet show cause dated 06.02.2013 repeated allegationsand termination followed on 30.07.2013 without dealing with reply. Practically, what wehave seen is that PSUs terminate contracts citing “unsatisfactory service” withoutadjudicating contractor’s defence. Supreme Court said show cause is not emptyformality. This blog explains Oryx Fisheries v. Union of India (2010) 13 SCC 427, whyGorkha Security Services (2014) 9 SCC 105 applies, and when Haryana Securitiesmandates reasoned order post-reply.
Facts: ESIC Issued Show Cause, Ignored Reply With Bio-Data, EPF/ESIC Details,Terminated Contract & Imposed Penalty. ESIC Hospital, Faridabad awarded securitycontract to appellant. Notice dated 04.08.2012 alleged: 1. Minimum wages not paid, 2.Statutory benefits not extended, 3. Less guards deployed, 4. No police verification.Appellant replied 17.08.2012 with photocopies of bio-data of 32 personnel, policeverification reports, DOB, qualifications, addresses, EPF & ESIC numbers. Show causedated 06.02.2013 repeated same lapses, proposed penalty/termination. Withoutconsidering reply, ESIC terminated contract w.e.f. 31.08.2013 vide letter 30.07.2013 andimposed penalty Rs.3000/- under Clause 27 vide order 11.09.2013. The Supreme Courtin Oryx Fisheries v. Union of India (2010) 13 SCC 427 held show cause notice must givereasons and order must deal with reply; else violates Article 14. The Supreme Court inCanara Bank v. V.K. Awasthy (2005) 6 SCC 321 held natural justice requires applicationof mind to reply. In Haryana Securities, termination letter 30.07.2013 gave no reasons,did not deal with bio-data/EPF proof. The Supreme Court in Kranti Associates v.Masood Ahmed Khan (2010) 9 SCC 496 held administrative orders must be reasoned. Acommon mistake clients make is assuming “unsatisfactory service” clause permitstermination without hearing. Haryana Securities says reply must be considered. ForPSUs, pass speaking order. For contractors, submit documents, seek reasons.
Show Cause Not Empty Formality: Supreme Court Says Proposal to Penalize RequiresAdjudication of Reply. Supreme Court noted show cause dated 06.02.2013 stated firm“failed to provide minimum wages... failed to submit required information... liable to belevied the cost.” Yet termination 30.07.2013 and penalty 11.09.2013 imposed withoutdiscussing appellant’s reply dated 17.08.2012 giving EPF/ESIC numbers and policeverification. The Supreme Court in Gorkha Security Services v. Govt. of NCT of Delhi(2014) 9 SCC 105 held blacklisting/termination is civil consequence; show cause mustspecify proposed action and order must consider reply. The Supreme Court in UMCTechnologies v. Food Corporation of India (2021) 2 SCC 551 reiterated show cause +consideration mandatory. The Supreme Court in Kulja Industries v. BSNL (2014) 14 SCC731 held penalty must follow due process. In Haryana Securities, ESIC treated reply asirrelevant. The Supreme Court in S.N. Mukherjee v. Union of India (1990) 4 SCC 594 heldrecording reasons ensures application of mind. Here termination letter silent. TheSupreme Court in Dharampal Satyapal Ltd. v. CCE (2015) 8 SCC 519 held post-decisional hearing no substitute. In our experience, hospitals terminate securitycontracts on complaints without verifying documents. Haryana Securities mandatesadjudication. For authorities, deal with each document. For contractors, insist speakingorder.
Penalty Under Clause 27 Without Findings Illegal: Supreme Court Quashes Rs.3000/-Fine Imposed Without Adjudication. Order dated 11.09.2013 imposed penalty Rs.3000/-under Clause 27 for violating Contract Labour laws and agreement terms. SupremeCourt quashed: “The respondents maintained that the appellant had violated the termsand conditions of the Contract Labour Laws and had also not complied with certainother requirements... vide this order, various penalties were imposed.” Court saidpenalty imposed without returning finding on reply dated 17.08.2012 giving EPF/ESICnumbers. The Supreme Court in State of U.P. v. Maharaja Dharmander Prasad Singh(1989) 2 SCC 505 held penalty must follow finding of breach after hearing. The SupremeCourt in Rash Lal Yadav v. State of Bihar (1994) 5 SCC 267 held administrative penaltywithout reasons void. The Supreme Court in Biecco Lawrie Ltd. v. State of W.B. (2009)10 SCC 32 held penalty for labour violation needs proof. In Haryana Securities, appellantgave EPF/ESIC numbers; ESIC didn’t verify or rebut. A common mistake clients make ispaying penalty to avoid litigation. Haryana Securities says challenge if no adjudication.For departments, hold inquiry. For contractors, demand proof of breach.
Conclusion
Haryana Securities & Services v. ESIC Hospital establishes that termination securitycontract natural justice show cause reply Haryana Securities ESIC Supreme Court 2013jurisprudence mandates consideration of reply before termination/penalty. SupremeCourt 29.10.2013 quashed termination and Rs.3000/- penalty for violating naturaljustice per Oryx Fisheries (2010) 13 SCC 427 and Gorkha Security Services (2014) 9SCC 105. As the law stands, show cause not empty formality; order must deal with replyand documents. For PSUs, pass reasoned orders. For contractors, submit EPF/ESICproof, seek adjudication. For Courts, set aside unreasoned termination. The SupremeCourt’s ruling in Haryana Securities protects contractors from arbitrary termination andenforces Article 14 in government contracts.
