R.K. Machine Tools Ltd. & Anr. vs Union Of India
2010 Latest Caselaw 813 Del

$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI

23.
+                     W.P.(C) No. 13457 of 2009


   R.K. MACHINE TOOLS LTD. & ANR.                 ..... Petitioners
                 Through: Mr. V. N. Koura with Mr. Ayush A.
                 Malhotra and Mr. Munindra Dwivedi, Advocates.

                   versus




   UNION OF INDIA                                ..... Respondent
                 Through: Ms. Rajdipa Behura with Ms. C.S.
                 Chauhan, Advocates and Mr. Som Sundaran, Joint
                 Secretary, Ministry of Defence.


                                    WITH

25.
+                     W.P.(C) No. 14083 of 2009

   M/S. HYT INNOVATIVE PROJECTS PVT. LTD.          ..... Petitioner
                 Through: Mr. Siddhartha Dave with Ms.
                 Jemtiben, Advocates.

                   versus


   UNION OF INDIA & ORS.                      ..... Respondents
                 Through: Mr. Jatan Singh, CGSC for UOI.

                                    AND
33.
+                     W.P.(C) No. 821 of 2010

   BIPROMASZ BIPRON TRADING S.A.              ..... Petitioner
                 Through: Mr. Darpan Wadhwa with Mr. M. R.
                 Shamshad and Ms. Divya Jha, Advocates.

                   versus


   UNION OF INDIA                             ..... Respondent
                 Through: Mr. Atul Nanda with Ms. Rameeza
                 Hakeem and Mr. Gaurav Gupta, Advocates.


WP (C) Nos.13457 & 14083 of 2009 & W.P.(C) No. 821 of 2010   Page 1 of 15
     CORAM:
    HON'BLE DR. JUSTICE S. MURALIDHAR

    1.Whether reporters of the local newspapers
      be allowed to see the judgment?                                  No

    2.To be referred to the Reporter or not?                           Yes

    3. Whether the judgment should be reported in the Digest?          Yes

                              ORDER

% 11.02.2010

W.P.(C) Nos. 13457 & 14083 of 2009& W.P.(C) No.821 of 2010 and CM Nos. 242, 889 (for direction) & 1720 of 2010 (for stay)

1. These three writ petitions arise out of a common set of facts and

accordingly are being disposed of by this order.

Introduction

2. The question that arises for consideration is the validity of a decision

taken by the Respondent Union of India („UOI‟) through the Ministry of

Defence („MoD‟) to put "on hold" all contracts with the Petitioner

companies. The contention of the Petitioners is that this decision taken

some time in June 2009 was without any prior notice to any of them and

that till date, even 8 months later, they are not aware of the reasons for

the said decision. According to them the work concerning contracts

worth several crores of rupees is at a standstill and even the bills for past

supplies which have been found to be in accordance with the contracts

have not been cleared. Since this is causing each of them great hardship

they have approached this Court with the above Writ Petition (C) Nos.

13457 and 14083 of 2009 and W.P.(C) No. 82 of 2010, seeking a

declaration that the orders of the Respondents to put "on hold" the past,

present and future contracts of each of them are illegal and void.

Background facts

3. The facts in each of these petitions may be noticed briefly.

4. In W.P.(C) No. 13457 of 2009 the Petitioners are R.K. Machine Tools

Ltd. („RKMTL‟) and Shri Vinod Kumar Soni its Chairman and

Managing Director. RKMTL has its registered office in New Delhi and

a factory at Ludhiana in Punjab. It employs more than 400 persons and

is engaged in the manufacture of various items of heavy machinery

including the textile machinery, lathe machines, boring machines,

shaping machines, gear hobbing machines and other special purpose

machines. RKMTL claims to have been supplying equipments to the

Indian Ordnance Factory („IOF‟) under the MoD and in particular the

mortar bodies for 120 mm guns of the Indian Army and to the Heavy

Vehicle Factories („HVFs‟), critical parts for the Vijayanta Tanks and

other critical parts. It is submitted that any interruption in the supply of

parts and components would seriously jeopardise not only the defence

production of the country but also the ability of the defence

establishment to maintain critical T-55, T-72 and T-90 tanks which

constitute the main armour of the defence forces.

5. As on 3rd June 2009, RKMTL had outstanding contracts to the value

of Rs.64.36 crores from various units/factories of the MoD. These are

governed by the general terms and conditions of the contract of the

Director General of Supplies and Distribution („DGS&D‟) in Form 68.

It is claimed that there is no particular condition which permits the MoD

to put on hold or to suspend any contract.

6. On 3rd June 2009 RKMTL received a letter from the Ordnance

Factory, Chanda, with reference to purchase order („PO‟) dated 22nd May

2008 (for the supply of Shell 105 mm IFG HE (Qty. 28,900 Nos)

quantity and a PO dated 29th March 2009 (for the supply of Bomb 120

mm HE quantity 14558 sets) both of which were "put on hold till further

orders." Thereafter on 24th June 2009 the HVF of the MoD at Avadi,

Chennai informed the Petitioner company that "as directed by the

Ministry of Defence all the supply orders pending/existing and related

activities on your firm are put on hold for the present, until further

orders." On 15th October 2009 RKMTL received a communication from

the IOF at Khadki, Pune with reference to the Supply Order dated 28th

April 2009 requesting it "to hold all the activities against the subject

supply order till further communication from our end."

7. It is stated that because of the above orders, RKMTL company has

also not been considered for the award of any future contracts even

though in some of them it has been the lowest bidder. Of the total value

of Rs. 61 crores of the contracts put on hold, projects worth Rs.5.57

crores were lying in the godowns of the RKMTPL ready for delivery.

Goods of the value of Rs.1.53 crores were under production and raw

materials worth Rs.4.61 crores had been procured and were still lying in

the stores of the Petitioner.

8. RKMTL addressed letters dated 22nd October 2009 and 5th November

2009 to the MoD requesting to know the reasons why it had "been

awarded such severe economic punishment without ever the coutesy of

being informed" of the charges and "without even being given an

opportunity" of explaining its position.

9. It must be mentioned here that although notice was issued in the

petition on 27th November 2009, no counter affidavit was filed till 8th

February 2010 and that too after this Court took a serious view of the

conduct of the Respondents in delaying the filing of the counter

affidavit.

10. In the counter affidavit a preliminary objection has been taken as to

the maintainability of the writ petition. It is submitted that Clause 2 of

the general terms and conditions provides that disputes and differences

arising from the contract are to be referred to the sole arbitration of an

officer appointed by the Director General, Ordnance Factory. It is

submitted, therefore, that unless that remedy is exhausted, the present

petition ought not to be entertained. Secondly, it is submitted that the

writ petition raises disputed question of facts. Thirdly, in terms of the

contract, "the Courts of the place from where the acceptance of tender

has been issued shall alone have jurisdiction to decide any dispute

arising out or in respect of the contract" and, therefore, this Court has no

jurisdiction to entertain these writ petitions. On merits it is stated that an

FIR No. RC/0102009A018 dated 17th May 2009 has been registered by

the Central Bureau of Investigation („CBI‟) in Kolkata against Shri

Sudipta Ghose, formerly Director General, Ordnance Factory Board

(„OFB‟) on the allegation of his having received bribe through an agent

in connection with the supplies made to the OFB. It is stated that the

FIR inter alia mentions the several firms/companies who are

suppliers/vendors to the OFB and this includes RKMTL. It is stated that

in view of the aforementioned FIR and Clauses 19 and 23 of the terms

and conditions of the contract relating to withholding and lien in respect

of sums claimed and penalty for use of undue influence, the MoD has

decided that all procurement/acquisition cases in the pipeline with any of

the firm whose name figures in the FIR "may be put on hold for the

present" and the "matter should be comprehensively re-examined in

consultation with the Chief Vigilance Commission and the Law

Ministry, and consolidated note prepared for information and directions

of CCS". Accordingly, an order dated 28th May 2009 was issued in

which it was instructed that "all procurement/acquisition cases in the

pipeline with any of the firm/companies/supplier/vendors figuring in the

said FIR may be put on hold for the present" and "should not be

proceeded with till further order." It is maintained that the above

decision is "an interim measure and the final decision has not yet been

taken in view of the CBI investigations still not completed." It is

claimed that the CVC has also opined that as long as the CBI

investigation was pending no dealings should take place with the

Petitioner company and other companies involved in the case. It is

claimed that the MoD is regularly coordinating with the CBI sharing the

information available with them and expediting investigation so that no

undue harm is done to any firm. In para 11 of the counter affidavit it is

stated that the CBI has informed the Secretary, MoD that the

investigation thus far has revealed the payment of illegal gratification in

respect of the Petitioner RKMTPL as well as the Petitioner in Writ

Petition (C) No. 14083 [M/s. HYT Inovative Projects Pvt. Ltd.

(„HYTIPPL‟)] and that the Petitioners "being guilty of a criminal offence

are estopped from raising the grievances as mentioned in the petition". It

is stated that the MoD has not yet taken any decision regarding

blacklisting of the companies and that the Respondents reserve their

right to take appropriate decision "after completion of the investigation

by the CBI."

11. The facts in W.P.(C) No. 14083 of 2009 is more or less similar

except that the HYTIPPL is located in Pune. It is stated that the

HYTIPPL is a part of the HYT Group. The HYT Engineering Pvt. Ltd.

(HYTEPL) is a sister concern of HYTIPPL. It is stated that although

these two companies are different in the eyes of law, the Respondents

have confused one for the other. HYTEPL is stated to be involved with

the Indian Railways whereas HYTIPPL deals with the defence sector. It

is claimed that the HYTIPPL specialises in the sale and manufacture of

Flow Form Tubes using the flow form process which is an advanced

form of spinning and is used in the military and aerospace industries to

produce precise thin walled, seamless rocket motor and missile casings,

nose cones, rocket housings and even cartridge casings. It is stated that

the HYTIPPL has been manufacturing and supplying Pinaka Motor Tube

using the flow forming process and at present has two supply orders

from the Ordnance Factory, Ambajhari (OFAJ), Nagpur (Respondent

No.2) for the supply of 750 and 1167 quantities of Pinaka Motor Tubes.

Consequent to the same FIR referred to hereinbefore, the contracts with

the Petitioner HYTIPPL have also been put on hold.

12. The petition narrates the allegations mentioned in the FIR. Inter alia

it is alleged that Sudipta Ghose had communicated with all the suppliers

and had spoken to one Bhojraj Hemraj Teli, Managing Director of

HYTEPL with regard to the payment of illegal gratification in return for

the favour already shown to HYTEPL. It is alleged that Sudipta Ghosh

asked Ashish Bose to pursue the suppliers to collect the remaining

money and further informed Ashish Bose that HYTEPL was required to

pay Rs.15 lakhs. It is claimed that during the course of searches

conducted in the house of one Ramesh Nambiar, besides other things, a

cheque dated 30th April 2009 of Rs.5 crores issued by HYTEPL in

favour of Archana Traders Pvt. Ltd., a Dubai based company of accused

Ramesh Nambiar‟s father-in-law was recovered. A credit card in the

name of Bhojraj Teli was also recovered. The Petitioner claims to have

been surprised by the order dated 4th June 2009 issued by Respondent

No.2 putting a hold on all procurement, including of the two supply

orders dated 6th December 2008 and 12th December 2008. It is submitted

that no reasons have been mentioned why the said decision has been

taken and that the effect of putting on hold tantamounts to blacklisting.

The order is assailed on the ground of being violative of the principles of

natural justice. It is claimed that even after the lodging of the FIR the

Petitioner continued to supply the motor tubes and the Respondent No.2

continued to accept them. The Petitioner surmises that the order putting

on hold has been passed only because the Petitioner company HYTIPPL

belongs to the HYT Group and that the Chairman of the HYTEPL and

HYTIPPL is common. HYTIPPL claims to have a separate office

having nothing to do with the alleged scam. It is stated that the payments

for the motor tubes already supplied to Respondent No.2 have not been

received. A total of Rs.7.31 lakhs approximately remains due and

payable for the supplies already made. The Petitioner‟s representations

dated 8th June 2009 and 12th July 2009 have not met with any response.

With its contracts being put on hold indefinitely the Petitioner has filed

the present petition seeking similar reliefs.

13. The counter affidavit filed in this petition on 6th February 2010 by

the MoD is identical to the reply filed by it in W.P.(C) No. 13457 of

2009.

14. In W.P.(C) No. 821 of 2010, the Petitioner is a Poland based

company Bipromasz Bipron Trading („BBT‟). The order dated 4th June

2009 passed by the MoD has put on hold about 23 contracts of the

Petitioner without any reasons being indicated. It is stated that BBT has

made huge investments for manufacturing the goods to be supplied

under the contracts. The said goods are ready for delivery/dispatch.

Bank guarantees have been furnished to the MoD and the Petitioner is

incurring a huge expenditure to keep the bank guarantees alive. The

impugned orders have also prejudiced the company very severely

inasmuch as other entities like Bharat Electronics Ltd. („BEL‟) have

refused to accept the goods in terms of the purchase orders placed with

the Petitioner BBT. Also MoD has refused to permit the BBT to

participate in fresh tenders.

Submission of Counsel

15. The submissions of Mr. V.N. Koura, learned counsel for Petitioner

RKMTPL, Mr. Siddhartha Dave, learned counsel for Petitioner

HYTIPPL and Mr. Darpan Wadhwa, learned counsel for BBT have been

heard. Ms. Rajdipa Behura, Mr. Jatan Singh and Mr. Atul Nanda learned

Standing counsel for the Union of India have addressed arguments on

behalf of the Respondents.

16. The common arguments on behalf of the Petitioners in all the three

petitions is that the impugned orders putting on hold the contracts have

been passed in violation of the principles of natural justice. None of the

Petitioners has been issued as much as a show cause notice seeking an

explanation in regard to any of the conclusion. Although HYTIPPL

received a copy of the FIR but the other Petitioners do not even know

what is contained in the FIR. Even the counter affidavit filed, which

refers to the FIR, does not enclose a copy of the FIR. Unless the

Petitioners know the reason why the impugned decision has been taken

they would not be in a position to place their point of view before the

Respondents. Relying on the decisions of this Court in Saraswati

Dynamics (P) Ltd. v. Union of India 2003 IV AD (DELHI) 225 it is

submitted that an indefinite suspension without observing the principles

of natural justice was per se illegal. A reference is also made to the

decisions in Bharat Filling Station v. Indian Oil Corporation Ltd. 104

(2003) DLT 601 and Bretton Woods Finlease Ltd. v. Mahanagar

Telephone Nigam Ltd. 125 (2005) DLT 69.

17. On behalf of the Respondents it is contended that the Petitioners

ought to have known by now that the decision to put on hold the

contracts was on account of the FIR registered by the CBI in which at

least two of these Petitioners are named. Since it was assumed that the

Petitioners would have any way known why the contracts were put on

hold, it was not felt necessary to issue any separate show cause notice to

each of them. Learned counsel for the Respondents handed over during

the course of hearing copies of the FIR both to the Court and to the

learned counsel for the other parties. It was submitted that the FIR itself

should be treated a show cause notice. Learned counsel for the

Respondents also tendered copy of a document purporting to indicate the

stage of investigation of the CBI and urged that since this was an

extremely grave and sensitive case for the MoD, the impugned order

ought not to be interfered with at all. The objections regarding

maintainability of the writ petitions as set out in the counter affidavit

have been reiterated.

Maintainability of the Petitions

18. In the first place this Court would like to deal with the objections as

to the maintainability of the petitions. It is now settled in several

judgments of the Supreme Court that the existence of an alternative

remedy is not a bar to the filing of a writ petition at least in three

contingencies, one of which is where the writ petition is filed "for the

enforcement of any fundamental right" or where there has been a

violation of the principles of natural justice [see Whirlpool Corporation

v. Registrar of Trade Marks, Mumbai (1998 (7) SC 243]. This position

was reiterated in Harbanslal Sahnia v. Indian Oil Corporation Ltd. JT

2002 (10) SC 561 and Popcorn Entertainment v. City Industrial

Development Corporation (2007) 9 SCC 593. As far as the present writ

petitions are concerned the common ground urged concerns violation of

the principles of natural justice. In fact, this Court does not propose to

examine the merits of the case since the admitted position in each of the

cases is that no show cause notice is issued seeking any information

from any of the Petitioners and informing them of the reasons why their

contracts have been put on hold. For the same reason, this Court does

not see the existence of an arbitration clause as precluding a challenge to

the decision of the Respondents on the grounds of violation of natural

justice. The objections as to maintainability are hereby rejected.

Violation of natural justice

19. Indefinite suspension of the contract without offering any reasons for

such decisions will undoubtedly cause severe prejudice. The facts in

Saraswati Dynamics is more or less similar to the facts of the present

cases. There the impugned order of suspension of supplies was passed

on the orders of the Defence Minister. The allegation there was of

corrupt practices. After noticing the judgments of the Supreme Court in

Erusian Equipment & Chemicals Ltd. v. State of West Bengal (1975) 1

SCC 70 where a memorandum of the State Government concerning

"suspension pending enquiry" was considered, this Court rejected the

contention of the Respondents that the principles of natural justice have

to be complied with only when suspension is resorted to as a punitive

action and "not when it is as an interim order i.e. pending suspension

enquiry." It was further noticed that any deficiency in a post-decisional

hearing as mentioned in Liberty Oil Mills v. Union of India (1984) 3

SCC 465 this Court concluded that the suspension order in that case

could not be continued indefinitely without affording the Petitioner an

opportunity of being heard. The enquiry was entrusted to a very senior

officer of the Government "who belongs to other Department."

20. Likewise in Bharat Filling Station the suspension order was sought

to be justified on the ground that an FIR had been registered. While

setting aside the suspension order, this Court in para 18 observed as

under:

"I may point out at this stage that I am not going into the issue as to whether allegations, contained in the inspection Report and First Information Report are correct inasmuch as learned counsel for the Petitioner has also tried to argue that the allegations made against the Petitioner are not correct. It would be a matter for the Respondent No.2 to decide after giving proper opportunity to the Petitioner. Any observation made by this Court at this stage may have an adverse effect on the Petitioner and/or the Respondent and that is why, I am refraining from making any such observations. I am only concerned with the manner in which action is taken by the Respondent No.2. Once it is found that principles of natural justice were required to be complied with for taking such action and admittedly that is not done the impugned notice/decision dated 13th June, 2001 terminating the dealership of the Petitioner cannot be sustained and is hereby set aside."

21. The submissions that the FIR itself should be treated as a show cause

notice requires to be mentioned only to be rejected. In the first place a

plea is not taken in the counter affidavit. In response to a query, whether

there is even a noting in the file to the effect that show cause notice was

not being issued only on the ground that the Petitioner should be

assumed to have a copy of the FIR which will itself be treated as a show

cause notice, learned counsel for the Respondents answered in the

negative. In other words, the Respondents were not even aware whether

any of the Petitioners have the copies of the FIR. In any event, the FIR

only sets out certain allegations on the basis of which investigations have

commenced. The precise materials which constitute the basis of the

decision to place the contracts of the Petitioners on hold have to be

communicated to each of them. Without the issuance of a show cause

notice seeking their explanation and without affording each of them an

opportunity of being heard, the Respondents cannot possibly indefinitely

put on hold their contracts. They cannot proceed on assumptions.

Obviously, even assuming that the Petitioners had a copy of the FIR (at

least two of the Petitioners i.e. BBT and RKMTPL appear not to have)

an FIR can hardly constitute a show cause notice.

22. The more sensitive the case, the greater the requirement for

complying with the principles of natural justice. After all, every person

accused of an offence has to know what the basis of the allegation is.

This Court is not called upon to decide at this stage the merits of the

individual cases at all. It is only concerned that the principles of natural

justice should be complied with by the Respondents before taking any

decision adverse to any of the Petitioners. It is therefore made clear that

the merits of the contentions of either party are not being depicted in this

order. All contentions are left open to be agitated in appropriate

proceedings.

Conclusion

23. For all the above reasons, the impugned orders passed by the

Respondents putting on hold the contracts with each of the Petitioners is

hereby set aside. It is made clear that it is open to the Respondents to

hereafter proceed "in a time bound manner" and in accordance with law.

The Respondents will not take any decision adverse to the Petitioners

without complying with the principles of natural justice indicated in the

manner hereinbefore. All other contentions on merits are left open to be

urged in appropriate proceedings.

24. The writ petitions are allowed with the above directions with costs.

The applications are disposed of.

S.MURALIDHAR, J

FEBRUARY 11, 2010 dn