M/S Empire Fantronics (I) Pvt Ltd ... vs Uoi And Ors
2011 Latest Caselaw 5436 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  Date of Decision: 11.11.2011

%                         W.P.(C.) No. 7951/2011


       M/S EMPIRE FANTRONICS (I) PVT LTD AND ORS ..... Petitioner
                      Through:    Mr. N.K. Kaul, Sr. Adv. with Mr
                                  Gautam Narayan and Mr. Amit
                                  Gupta, Advocates

                         versus


       UOI AND ORS                                        ..... Respondent
                              Through:   Mr Rajinder Nischal and Mr. M.P.
                                         Singh, Advocates



CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI

1.     Whether the Reporters of local papers may
       be allowed to see the judgment?                   :     No

2.     To be referred to the Reporters or not?           :     No

3.     Whether the judgment should be reported
       in the Digest?                                    :     No


VIPIN SANGHI, J. (ORAL)

1. By this petition preferred under Article 226 of the Constitution

of India, the petitioner assails the order dated 02.11.2011 passed by

the Deputy Directorate (QA) for DDG (QA) Director General of Supplies

and Disposal (DGS&D), whereby the petitioner has been found guilty of

the charges leveled against it and the petitioner company has been de-

registered, and its name has been removed from the list of registered

suppliers with effect from 14.11.2011.

2. The case of the petitioner is that the petitioner is a

manufacturer and supplier of ceiling fans, exhaust fans and other

electrical products. The petitioner was a registered supplier/vendor of

the DGS&D, which is a Central Purchase and Quality Assurance

Organisation of Govt. of India, since the year 2006. DGS&D is the

nodal agency of the Govt. of India for purchase policy and procedure.

The Government Departments/Organisations, who do not have their

own infrastructure for purchase of equipment can raise their demands

on DGS&D for adhoc procurement. It is stated that the DGS&D has a

full fledge quality assurance wing which renders, inter alia, the service

of evaluation and inspection for assuring quality of goods supplied by

vendors such as the petitioner.

3. The petitioner claims that during the period November-

December 2010, it supplied to the administration of Dadra & Nagar

Haveli goods of the value of Rs.1,52,67,902/- on the basis of orders

placed on its by the Executive Engineer, Electricity Department, Dadra

& Nagar Haveli. It is the petitioner's case that these goods were duly

inspected by the quality assurance wing of the respondent and

inspection notes were issued to the petitioner.

4. The respondent issued a show cause notice dated 27.06.2011

to the petitioner alleging that communication had been received from

the concerned administration of Dadra & Nagar Haaveli by the CCA,

Vigilance Directorate of the office of DGS&D, wherein it had been

reported that the petitioner was involved in financial embezzlement.

The petitioner was alleged to be involved in a fraud of raising bills and

claiming payment from CCA fraudulently. By placing reliance on

Clause 5.17.2 of the DGS&D Manual, on account of the alleged

involvement in financial embezzlement and fraud, and for raising

fraudulent bills to the CCA, the petitioner was required to show cause

as to why the petitioner's registration with the DGS&D should not be

cancelled, and its name be not removed from the list of registered

vendors of DGS&D.

5. Another communication dated 28.06.2011 was also issued to

the petitioner alleging that the petitioner was involved in the

fraudulent act of claiming payments to the tune of Rs.21,64,65,477/-

from the CCA, New Delhi against unauthorized supply orders for

electric ceiling fans and exhaust fans. It was alleged that the aforesaid

department of DGS&D, Silvassa had also confirmed of not having

placed any such supply orders on the petitioner firm. The respondent

by order dated 28.06.2011 sought to short close the petitioner's rate

contract No.Ex. Fans/ME-2/RC-B 3050000/0911/02/NA820/4039 dated

20.10.2010 for Exhaust Fans.

6. The petitioner challenged the said short closure of the

petitioner's rate contract and also raised a challenge to the show cause

as issued by the respondent by filing W.P.(C.) No.5805/2011 before this

Court. This writ petition was disposed of by this Court on 11.08.2011

by invoking the decision dated 28.07.2011 rendered in W.P.(C.)

No.5223/2011 titled Allied Engineering Works v. Directorate General of

Supplies & Disposal. The Court directed that till the respondents, in

pursuance of the show cause notice, pass an order finding the

petitioner guilty of the offence with which it is charged after granting

the petitioner a hearing, the respondent shall not take any steps of

blacklisting the petitioner and shall not give effect to the short closure

of the contract till the passing of the order on the show cause notice.

The said order of the Court was, however, not to come in the way of

the respondents stopping payments for the supplies which were

claimed to have not been made. The order to be passed on the show

cause notice issued to the petitioner was not to be given effect for a

period of one week from the date of communication to the petitioner,

so as to enable the petitioner to avail all its remedies.

7. I may note that prior to the disposal of the said writ petition of

the petitioner, the petitioner sent a reply to the show cause notice on

20.07.2011. Since the said reply has some bearing on the decision of

this case, the same is reproduced herein below:

"Dear Sir,

With reference to above said letter this is to inform that we had surrender the total amount which was mentioned in Silvassa case to the CCA Office, since we had surrender this amount in the CCA, so the further query to this regard may be dropped and the de-registration process of our firm and short-closing of rate contract may also be dropped.

It is our humble request if the same action is taken in our favour so, we will be able to continue the work with DGS&D with our sincerity and honesty.

We are innocent in this case and we are not

involved in any activity of this Silvassa case.

This may be appreciated in this case and will be an example for other companies in future to recover the lost govt. funds.

Thanks,

Yours faithfully,

Empire Fantronics (I) Pvt. Ltd.

Director". (emphasis supplied)

8. After the disposal of the aforesaid writ petition, the

respondent issued another communication dated 29.09.2011 to the

petitioner. The respondent stated that the petitioner's reply is evasive.

The respondent also stated that the petitioner had not denied

specifically and categorically its involvement in financial

embezzlement. The respondent communicated to the petitioner the

list of 16 supply orders provided by the CCA, New Delhi, which were

reported to be fake, against which the petitioner had claimed

fraudulent payment and involved itself in financial embezzlement. It

was also stated "Indentor vide their letter No.11-8(21)/Ele/2011/437

dtd. 27.4.11 has also confirmed that they have neither placed any

supply order nor have received any material against these orders but

you have claimed payment against the same".

9. The respondent also raised the issue of another supply order

for electric ceiling fan 1200mm vide S/O

No.30/2008/4031/4057/2/2/555 dt. 12.02.09 of NE Rly., Gorkhpur. It

was stated that the consignee vide their letter

no.10/Rej/30/2008/4031/4057/2/2/555 dated 08.02.11 had rejected the

consignment on the ground that the petitioner had supplied

uninspected goods, thus violating Clause 5.17.2 (c) of DGS&D Manual.

The petitioner was given an opportunity to meet the charges by

appearing in person on 12.10.2011.

10. On 12.10.2011, the petitioner sent another communication to

the respondent in response to the second notice. In this response, the

petitioner, inter alia, stated as follows:

"Sir,

With due respect it is to bring some points to your kind notice as under:

1. Our company had supplied to Electricity Board, Silvassa and claim for payment from CCA is just amount Rs.1,52,67,902/- only.

2. We confirm that we had supplied the full material in good condition to the said department, as when we came to know about the scam our company had already withhold the said amount to CCA to avoid misuse of govt. funds, till the final decision came for the said case.

3. The said amount includes Rs.29,63,000/- (approx.) as the part of taxes like excise duty, vat etc. that we had deposited to the concern departments.

4. We also confirm that our company is neither directly involve in procuring the said supply

order nor getting receiving of stores on inspection note from the said department.

5. We declare that our company is not involved in the said fraud either intentionally or unintentionally.

6. Still our company is in active position, as we are applying for inspection calls, dispatching materials etc.

7. We are supplying materials through DGS&D for last four years, we request your esteemed department to confirm from all our consignees about our performance, quality and quantity of the supplied material.

8. We confirm that we are innocent and we had not done any fraud.

9. We also assure to your esteemed department for our support, help etc whatever required for investigation for the said case". (emphasis supplied)

The petitioner also submitted various documents by another

letter of 12.10.2011 before the DDG (QA) N/Z.

11. Consequent upon the said hearing, the impugned order has

been passed by the respondent, as aforesaid.

12. The submission of learned senior counsel for the petitioner,

Mr. Neeraj Kishan Kaul is that the impugned order is cryptic and does

not deal with the host of documents produced by the petitioner before

the respondent to establish the factum that the goods supplied by the

petitioner had been inspected by the inspection wing of the

respondent, which is an independent wing. The respondent has also

not considered the fact that the petitioner had paid a huge amount of

excise duty amounting to Rs.29,63,000/- on the supplies stated to have

been affected at Dadra & Nagar Haveli, Silvassa. He submits that the

petitioner's case was that the petitioner had made supplies in response

to 16 supply orders, in relation whereto it was claimed that these

supply orders were fake, and the petitioner did not made any supplies.

He submits that no finding has been returned in the impugned order in

relation to, either the inspection notes, or the factum of the supplies

not being made. He, therefore, submits that the impugned order is

completely non speaking and illegal. He further submits that after the

issuance of the initial show cause notice, by subsequent

communication dated 29.09.2011, the respondent for the first time

sought to raise the issue with regard to the supplies made to NE

Railway, Gorakhpur. He submits that the allegations made by the

respondent that the petitioner had supplied uninspected electric ceiling

fans against SO dated 12.02.2009 in relation to the DGS&D rate

contract dated 11.08.2008 to NE Railway, Gorakhpur is patently

incorrect. In any event, there was no fraud involved, as the said goods

had been rejected.

13. Mr. Kaul has also drawn my attention to the various provisions

of the DGS&D Manual to emphasise the detailed procedure regarding

inspection of the goods. He submits that a very detailed exercise is

undertaken by the inspection wing of the respondent and only

thereafter the goods are cleared.

14. Having heard learned senior counsel for the petitioner, I am of

the view that there is absolutely no merit in this petition and the same

is liable to be dismissed.

15. A perusal of the show cause notice, as initially issued, shows

that the same lacked in material particulars. It only made general

allegations against the petitioner without any specific facts and details.

When the petitioner challenged the said show cause notice before this

Court, it was left to the petitioner to raise the issue with regard to the

show cause notice not being specific etc. before the concerned

authority. Soon after the disposal of the writ petition, the respondent

issued yet another notice dated 29.09.2011. This notice was very

specific inasmuch, as, it made reference to the indentors letter dated

27.04.2011, whereby it was confirmed that they had not placed the 16

orders claimed to have been issued, and had also confirmed that they

had not received any material against the so-called orders. The details

of each of the said 16 fake supply orders were also provided to the

petitioner.

16. Pertinently, even after receiving the first show cause notice,

the response of the petitioner dated 20.07.2011 was not to deny the

allegation of fraud and financial embezzlement. The response of the

petitioner in its letter dated 20.07.2011 was that the petitioner had

surrendered the total amount which was mentioned in the Silvassa

case to the CCA office and that, therefore, further query in this regard

may be dropped and de-recognition process and short closing of

contract may also be dropped.

17. The stand of the petitioner subsequently taken in its letter

dated 12.10.2011, and also before me - that the petitioners conduct

was completely above board and the petitioner had made complete

supplies against validly procured purchase orders is wholly inconsistent

with the stance of the petitioner taken in its first communication dated

20.07.2011. The surrender of the amount in question, which was to

the tune of Rs.1.50 crores, as is evident from the communication dated

20.07.2011 was unconditional and final, and not merely provisional till

the matter is finally resolved.

18. The later conduct of the petitioner and the stand taken by it is

even more interesting. In its communication dated 12.10.2011, the

petitioner states that the petitioner came to know about the scam and

that the petitioner had already asked the CCA to withhold the amount

to avoid misuse of govt. funds till the final decision came in the said

case. What the petitioner stated in para-4 of this communication is

most startling. The petitioner states that "our company is neither

directly involve in procuring the said supply order nor getting receiving

of stores on inspection note from the said department". Therefore, the

petitioner has washed its hands off and disowned the 16 purchase

orders in question, as also the acknowledgement about receiving the

stores on the inspection notes from the concerned department

pertaining to the said 16 orders.

19. A perusal of the impugned order shows that Sh. Nitin Agarwal,

Director and Sh. S.S. Mishra, QCI of the petitioner, during the course of

personal hearing, stated "that they had neither received these orders

from the Indentor/Consignee nor they had delivered the stores directly

to them, but they informed that some agent had given these orders to

them and in turn the material have also been handed over to same

agent and agent further delivered receipted I/Notes to them for

claiming payments".

20. Pertinently, it is not the case of the petitioner that in the

impugned order, the submissions made by Sh. Nitin Agarwal, Director

and Sh. S.S. Mishra, QCI have not been accurately recorded.

21. It is, therefore, abundantly clear that even according to its

own admission, the goods were not delivered by the petitioner to the

Indentor, i.e. Dadra and Nagar Haveli, Silvasa. The petitioner also does

not have any personal knowledge about how the delivery notes, i.e.

receipted inspection notes were obtained from the concerned

department of DGS&D and the alleged indentor. The petitioner has

resorted to mal-practice of involving agents for the purpose of

procuring forged and fabricated purchase order and inspection notes

with endorsement of delivery thereon. Chapter 13 of the DGS&D

Manual, clause 13.1.3 provides that the supply order can be placed on

any of the rate contract holding firm either directly by the authorized

officers of the Indentors (known as direct demanding officers) or by the

DGS&D, subject to such restriction as are mentioned in the rate

contract. The petitioner, admittedly, does not claim that the purchase

orders in question were directly placed upon it by the DDO or by the

DGS&D.

22. The submission of the petitioner is that the respondent,

before passing the impugned order, has not examined the documents

relied upon the petitioner, is neither here nor there. This is for the

reason that the fundamental documents namely, the supply orders

themselves have been disowned by the petitioner. Not only that, even

the inspection notes with the endorsement of delivery thereon have

been disowned by the petitioner by pleading ignorance in relation

thereto. The petitioner on its own admission, does not claim to have

delivered the goods to the indentor, but claims to have delivered the

same to some "agent", whom he does not name, and whose

particulars he does not provide. It is not the petitioners case that the

so-called "agent" is an authorized agent of either the DGS&D or of the

indentor.

23. The submission of Mr. Kaul is that the two communications of

the petitioner dated 20.07.2011 and 12.10.2011 do not appear to be

happily worded. He submits that the aspect of the supplies made by

the petitioner has not been examined. These aspects have been dealt

with by me above. This Court is examining the impugned order in

judicial review, and not as an appellate authority. The impugned order

has to be tested on the basis of the material placed before the

authority disposing of the show cause notice, and the explanation now

sought to be furnished by the petitioner before this Court, by claiming

that the petitioner said something in its communication, but intended

to say something else, cannot be accepted. The material available

before the respondent while passing the impugner order cannot be

said to be insufficient or irrelevant to conclude that the petitioner had

indulged in financial embezzlement and fraud. The proceedings for de-

registration and short closure are not criminal proceedings, and the

standard of proof applicable in these proceedings is not the same as is

required to be attained in criminal proceedings. Even if one were to

ignore the charge against the petitioner in relation to supply of

uninspected stores to NE Railway Gorakhpur, the remaining allegation

pertaining to 16 fabricated purchase orders is extremely serious, and is

clearly established.

24. The finding returned by the respondent in the impugned order

is supported by cogent and relevant evidence, and the order appears

to be well reasoned.

25. Accordingly, the present writ petition is devoid of merit and is

dismissed with costs of Rs.50,000/- to be paid to the Delhi Legal

Services Committee. Costs be paid within four weeks.

26. It is made clear that any observation made in these

proceedings shall not prejudice the case of either party in any criminal

or other proceedings.

27. Learned counsel for the respondent has also drawn my

attention to the Annexure P-18, which is a document issued by the ES

Directorate of the DGS&D bearing No.ES/Vigilance/Daman &

Diu/2011/XLPE, which enlists the names of 9 firms, including that of the

petitioner, who are alleged to have similarly been involved in claiming

payment on the basis of fake supply orders. This note records that the

matter has been taken up for investigation by the Crime Branch of U.T.

Administration and the case is being closely mentioned for taking

necessary remedial steps. It is not disclosed by the respondent as to

whether or not any FIR has been registered or any investigation has

been carried out against any of the 9 suppliers by any investigating

agency.

28. The wrongdoings in which the petitioner has been found to be

involved pertain to the year 2008. Since then much water has flown.

The nature of fraud unearthed is such that the involvement of some

officers of the DGS&D and of the indentors cannot be ruled out. The

petitioner himself admits to involvement of "agents". It is possible that

the same modus operandi may have adopted by the petitioner and

other suppliers in collusion and connivance with the officials of the

concerned departments over the years. These aspects need thorough

investigation by a competent investigating agency having pan India

reach, as the pseudo indentors could be located anywhere in the

country.

29. In my view, the aforesaid is an aspect which concerns larger

public interest as public funds to the tune of few crores appear to have

been siphoned off. As aforesaid, the involvement of the officers of the

respondent, DGS&D and the Indentors cannot be ruled out as, it

appears, payments have been released to the contractors on the basis

of forged and fabricated documents. Whether or not, and if so, in what

manner the investigation should be directed to be conducted by an

investigating agency like the CBI in the present case, needs to be

considered by this Court. To consider this aspect, let the matter be

placed before the Division Bench dealing with the public interest

litigation on 23.11.2011.

VIPIN SANGHI, J

NOVEMBER 11, 2011 sr