Judgment : The petitioner is a limited company and registered as ‘S’ Class Contractor with the Director General of Naval Project, Visakhapatnam, the 2nd respondent herein. On the basis of that certification, it is entitled to be awarded contracts, up to the value of Rs.7.5 crores, in the year 2005, and it is now said to have been enhanced to Rs.12 crores. The 2nd respondent issued a tender notice, for selecting the agencies, to execute certain civil works, such as, construction of accommodation at Visakhapatnam. The petitioner emerged as the lowest tenderer, and accordingly it was awarded the contract, worth Rs.1,63,51,338.25. The work was to be completed by 07-06-2007. 2. The petitioner states that the schedule of the work could not be adhered to, on account of reasons beyond its control. Correspondence ensued between the petitioner and the 2nd respondent, be it, as to the progress of the work, or quality thereof. In the meanwhile, the registration of the petitioner, as ‘S’ Class contractor, expired. Application was also made for its renewal. 3. The 2nd respondent issued a show cause notice dated 16-11-2007, directing the petitioner to explain, as to why the tenders issued to it be not withdrawn, and the future tenders be not stopped. The alleged deficiencies on the part of the petitioner were mentioned. On receipt of the same, the petitioner submitted its explanation on 27-11-2007. The 2nd respondent issued proceedings dated 11-01-2008, returning the application for renewal and demoting the classification of the petitioner from ‘S’ class to ‘A’ class. The petitioner feels aggrieved by the same. 4. The petitioner contends that the action indicated in the show cause notice has absolutely no connection, or relevance with the impugned order. According to the petitioner, the proposal to demote its classification was not put at issue, at any point of time, and the whole exercise is illegal, arbitrary and violative of principles of natural justice. 5. On behalf of the respondents, a detailed counter-affidavit is filed. It is stated that the petitioner did not maintain the progress of the work, despite repeated reminders, and that the impugned order was passed, after considering the explanation offered by the petitioner. It is urged that the petitioner has no fundamental right to seek renewal of classification, or enhancement of the value thereof. 6. It is stated that the petitioner did not maintain the progress of the work, despite repeated reminders, and that the impugned order was passed, after considering the explanation offered by the petitioner. It is urged that the petitioner has no fundamental right to seek renewal of classification, or enhancement of the value thereof. 6. Learned counsel for the petitioner submits that, on receiving the show cause notice, the petitioner submitted a detailed reply, by indicating the reasons for the delay, and the facts and figures pertaining to the work. He contends that the very fact, that the course of action indicated in the show cause notice was not resorted to; discloses that the explanation offered by the petitioner was found satisfactory, and the action of the respondents in demoting the petitioner is arbitrary, illegal and violative of principles of natural justice. He places reliance upon certain decided cases. 7. Sri A. Rajasekhar Reddy, learned Assistant Solicitor General submits that the petitioner did not maintain the pace and quality of the work, and that the same has been pointed out in the show cause notice. He contends the though a more severe punitive action was mooted by the respondents, a relatively less severe action was taken against the petitioner. He places reliance upon the judgment of the Supreme Court in New Horizons v. Union of India (1) (1995) 1 SCC 478 , and certain other precedents. 8. On finding that the bid offered by the petitioner, for the work undertaken by the respondents, is more economical and the least, they awarded the contract, by proceedings dated 25-05-2006. The show cause notice dated 16-11-2007 was issued to the petitioner alleging that it did not complete the execution of the work, within the stipulated time. During the inspection of the site, on 12-11-2007, the following deficiencies are said to have been noticed: (a) Beams alignment. (b) Balcony on 2nd floor. (c) Vertical alignment of brick walls of railings on the balconies. (d) Different sizes of arches in floors of JCOs accommodation. (e) Rusted mosquito proofing GI wire mesh in JCOs accommidation. 9. Even while requiring the petitioner to complete the work, without any further delay, and to correct the deficiencies, the respondents required it to explain, within two weeks, as to “why issue of tenders in future should not be stopped, and that the tenders already issued be not withdrawn”. (e) Rusted mosquito proofing GI wire mesh in JCOs accommidation. 9. Even while requiring the petitioner to complete the work, without any further delay, and to correct the deficiencies, the respondents required it to explain, within two weeks, as to “why issue of tenders in future should not be stopped, and that the tenders already issued be not withdrawn”. The petitioner filed an explanation dated 27-11-2007. The application submitted by the petitioner for renewal of its registration as ‘S’ class contractor, and for revision of the limits of the value from Rs.7 crores to Rs.12 crores, was pending. 10. The 2nd respondent issued proceedings dated 11-01-2008. Through this, the 2nd respondent has not only returned the application of the petitioner for renewal, but also demoted him from ‘S’ class contractor to ‘A’ class contractor. The show cause notice dated 16-11-2007, and the explanation submitted by the petitioner on 27-11-2007, were referred to. Consideration of the matter started from paragraph No.2 onwards. In the second Paragraph the reasons for not acceding to the request of the petitioner for renewal are stated. In paragraph No.3, mention is made to the show cause notice dated 16-11-2007, and to the deficiencies pointed out therein. Para 4 reads as under: “In view of above, your firm, is hereby demoted to ‘A’ Class (Upper Tendering limit Rs.300 lakhs) and allotted Index No.A – 01 with the same partners as approved for enlistment vide this office letter No.DG/2065/S/VSS/26/E8 dated 19 Jul 2005 and with the same categories of work mentioned therein”. 11. Paragraphs 5 to 8 indicate the consequences, that ensue, on account of the demotion in classification. In paragraphs 8 and 9, the future course, as to the renewal; is mentioned, as under: “Para-8: Please note that your enlistment is valid upto 31 Dec 2010 and the application for renewal would be required to be submitted by 31 May 2010. Para-9: In view of the above, TDR Bearing No. TBM/TDR/99/A 0522604 dated 06 Dec 205 for Rs.2,00,000/- of Bank of Baroda in original is returned herewith unauctioned. However, Bond to secure performance, duly signed by all Directors be submitted by 31 Jan 2008 for our further action”. 12. From the above, it is clear that the 2nd respondent was not clear as to the nature of action, which he proposed, and the consequential decision, he has taken. However, Bond to secure performance, duly signed by all Directors be submitted by 31 Jan 2008 for our further action”. 12. From the above, it is clear that the 2nd respondent was not clear as to the nature of action, which he proposed, and the consequential decision, he has taken. The show cause notice is a bit vague and uncertain. On the one hand, the petitioner was required to speed up the work and rectify the deficiencies, and no the other hand, it was asked to explain, as to why it be not blacklisted, though, not indicated in such clear terms. The petitioner submitted its explanation on 27-11-2007. The fats that the 2nd respondent did not disqualify the petitioner from future tenders, and did not withdraw the existing ones, connotes that the explanation offered by the petitioner appealed to him, and he dropped the action, proposed in the show cause notice. 13. Curiously, by making reference to that very show cause notice, the 2nd respondent has taken against the petitioner, several punitive steps. Here again, there is total lack of clarity, on the part of the 2nd respondent. He has chosen to return the application of the petitioner for renewal of the classification. At the same time, he has reduced the level of classification from ‘S’ class to ‘A’ class. If there was no subsisting registration, it is not known as to how the demotion became necessary. These anomalies would have their own telling effect upon the nature of exercise of power, by the 2nd respondent. The petitioner cannot be subjected to punitive consequences, contrary to law. There was absolutely no occasion for the 2nd respondent to demote the petitioner, unless a show cause notice, in this regard, was issued. 14. So far as the application for renewal of registration is concerned, it could have been rejected, or returned, only by making reference to specific provisions of the Circulars, or Rules, that govern the registration and renewal thereof. Once a contractor is registered under a particular category, he acquires right to seek renewal, on compliance with he conditions. He would have a legitimate expectation for renewal thereof. The rejection of renewal can be, only with reference to the relevant provisions of law. The judgment relied upon by the learned counsel for the respondents has no application to the facts of the case. 15. He would have a legitimate expectation for renewal thereof. The rejection of renewal can be, only with reference to the relevant provisions of law. The judgment relied upon by the learned counsel for the respondents has no application to the facts of the case. 15. Viewed from any angle, the impugned order cannot be sustained. The writ petition is accordingly allowed, and the impugned order dated 11-01-2008 is set aside. The 2nd respondent is directed to consider the application of the petitioner for renewal of its registration as ‘S’ class contractor, afresh. 16. There shall be no order as to costs.