Delhi High Court
M/S Jbm Ecolife Mobility Private ... vs Union Of India & Ors. on 11 October, 2022
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on : 13.09.2022
% Judgement pronounced on : 11.10.2022
+ LPA 327/2022, CM Nos. 23025/2022 & 35938/2022
M/S JBM ECOLIFE MOBILITY PRIVATE LIMITED ... Appellant
Through: Mr Mukul Rohtagi and Mr Sandeep
Sethi, Sr. Advs. with Mr Atul Sharma
and Mr Sanjay Gupta, Advs.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr N. Venkatraman, ASG with Mr
Apoorv Kurup, CGSC and Ms Nidhi
Mittal, Advs. for R-1.
Ms Shivani Rawat with Ms
Jojongandha Ray, Advs. for R-2.
Dr. Abhishek Manu Singhvi, Sr. Adv.
with Mr Gopal Jain, Sr. Adv. with Mr
Nalin Kohli, Ms Nandini Gore and
Ms Aditi Bhatt, Advs. for R-3.
+ LPA 500/2022, CAV 256/2022 & CM Nos.38085-86/2022
UNION OF INDIA ..... Appellant
Through: Mr N. Venkatraman, ASG with Mr
Apoorv Kurup, CGSC and Ms Nidhi
Mittal, Advs.
versus
M/S JBM ELECTRIC VEHICLES PVT LTD & ANR.... Respondents
Through: Mr Mukul Rohtagi and Mr Sandeep
Sethi, Sr. Advs. with Mr Atul Sharma
and Mr Sanjay Gupta, Advs. For R-1.
Mr Kush Chaturvedi with Ms
Priyashree Sharma, Advs. for R-2.
Signature Not Verified
Digitally Signed By:TARUN
RANA LPA 327/2022 & 500/2022 Pg. 1 of 46
Signing Date:11.10.2022
19:23:29
CORAM:
HON'BLE MR JUSTICE RAJIV SHAKDHER
HON'BLE MS JUSTICE TARA VITASTA GANJU
[Physical Court hearing/ Hybrid hearing (as per request)]
TABLE OF CONTENTS
Preface: ........................................................................................2
Submissions of the Counsels: .............................................................14
Reasons and Analysis: ......................................................................22
Conclusion: ...................................................................................45
RAJIV SHAKDHER, J.:
Preface:
1. The above-captioned appeals, though, preferred against two separate
judgements passed by the learned Single Judge, are inextricably
interconnected; an aspect which will emerge once the broad facts are set
forth by us.
1.1 The first appeal i.e., LPA 327/2022 has been preferred by an entity
going by the name JBM Ecolife Mobility Pvt. Ltd. [hereafter referred to as
"JBM Ecolife"]. This appeal has been lodged against the judgment of the
learned Single Judge dated 10.05.2022 passed in WP(C) 6708/2022
[hereafter referred to as the "first impugned judgement"]. Via the first
impugned judgment, the learned Single Judge dismissed the writ petition of
JBM Ecolife.
1.2 The second appeal i.e., LPA 500/2022 has been preferred by the
Union of India [hereafter referred to as "UOI"] against the judgment of the
learned Single Judge dated 08.08.2022 passed in WP(C) 8047/2022
[hereafter referred to as the "second impugned judgment"]. Via this
judgment the learned Single Judge quashed two communications i.e., letters
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dated 25.04.2022 and 29.04.2022 which had been issued by the Ministry of
Heavy Industries [hereafter referred to as "MHI"] and Industrial Finance
Corporation of India Ltd. [hereafter referred to as "IFCI Ltd."], respectively.
Pertinently, this writ petition had been filed by a sister concern of JBM
Ecolife i.e., an entity going by the name JBM Electric Vehicles Pvt. Ltd.
[hereafter referred to as "JBM Electric"]. The reason JBM Electric had
approached the learned Single Judge for relief, centred around its grievance
that it (and by association, all companies which were part of the JBM Group,
which included JBM Ecolife) had been debarred from participation in all
future tenders and the interconnected Production Linked Incentive Scheme
[hereafter referred to as "PLI Scheme"] up until 31.03.2027.
1.3 Thus, the net effect of the second impugned judgment is that the
debarment directive issued by MHI on 25.04.2022, which was
communicated to JBM Electric by IFCI Ltd. on 29.04.2022, is no longer
operable; at least not for the moment. Much will depend, though, upon the
outcome of the instant appeals.
1.4. JBM Electric's sister concern i.e., JBM Ecolife had preferred the appeal
(i.e., LPA 327/2022) against the dismissal of its writ petition by the learned
Single Judge via the first impugned judgment at the point in time when
debarment directive issued against JBM Electric was in operation. The main
thrust of its appeal was that it had been knocked out of the race for being
awarded the subject contract, although it had tendered the lowest bid, albeit,
only on the ground that its sister concern i.e., JBM Electric had been
debarred/blacklisted. The learned Single Judge via the first impugned
judgment had refused to grant any relief to JBM Ecolife, as according to
him, its ouster from the race was a "self-activating" eventuality which got
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triggered the moment its sister concern i.e., JBM Electric was
debarred/blacklisted. In the process the learned Single Judge rejected the
pleas advanced on behalf of JBM Ecolife that its ouster was illegal as it
violated the basic norms of principles of natural justice i.e., it had neither
been served any show cause notice nor was it heard before being subjected
to an outcome which had grave consequences.
2. Since the second impugned judgment was rendered while the appeal
against the first judgment was pending adjudication, an application (i.e., CM
Appl. 35938/2022) was moved by JBM Ecolife praying that its appeal ought
to be allowed, having regard to the fact that the debarment directive issued
against JBM Electric was no longer operative. On 18.08.2022, we had issued
notice in the application and on return of notice, a request was made on
behalf of UOI to stand over the appeal i.e., LPA 327/2022, as UOI was
intending to file an appeal against the second impugned judgment rendered
by the learned Single Judge. The request was acceded to. It is in this
backdrop that the second appeal i.e., LPA 500/2022, came to be lodged
before us.
3. For completion of the narrative, it would also be relevant to note that
since the learned Single Judge had not granted interim relief to JBM Electric
in WP(C) 8047/2022, it had preferred an appeal, which was numbered as
LPA 357/2022. This appeal was disposed of by us via an order dated
27.05.2022.
3.1. The learned Single Judge in paragraph 19 of the second impugned
judgment has referred to this aspect of the matter. The operative directions
issued by us via the order dated 27.05.2022 read thus:
"6.5. It is, therefore, quite apparent to us that in order to
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ensure that the writ petition, which is pending adjudication
before the learned single judge, is not rendered inefficacious
and/or mere formality, the rights of the appellant will need to
be preserved, albeit, to a limited extent. Therefore, the appeal
is disposed of with the following directions:
(i) The appellant would be entitled to participate in the
tenders which, we are told, are in the offing. These being
tenders floated by :
(a) Jammu Smart City Limited, Jammu;
(b) Aurangabad Smart City Development Corporation
Limited, Aurangabad;
(c) Navi Mumbai Municipal Transport (NMMT), Navi
Mumbai; and
(d) Assam State Transport Corporation, Guwahati.
(ii) The employer and/or the authority considering the bid(s)
submitted by the appellant will not reject it on the ground
that the appellant has been debarred by respondent
no.1/UOI-MHI. This direction, however, will not come in the
way of the employer and/or authority considering the bid,
rejecting the appellant‟s bid on other tenable grounds.
(iii) Needless to add, the aforementioned direction will not
come in the way of the learned Single Judge disposing of the
writ action. The writ action will be adjudicated without being
influenced by the directions issued by us hereinabove.
(iv) The aforementioned directions have been issued, without
prejudice to the rights and contentions of both the parties.
7. Since the learned Single Judge has fixed the matter
before the vacation Bench on 10.06.2022, we would request
the concerned bench to dispose of the same, if time permits,
on that date or any other date which is convenient to the
concerned Bench. This decision will be of the concerned
Bench, sitting in vacation.
8. At this stage, Mr Sethi says that similar directions
would be required vis-a-vis group companies as well, since
the debarment qua the appellant impacts other sister
concerns.
8.1. To our minds, since the other sister concerns are not
before us in this appeal, liberty is given to the appellant to
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move the learned Single Judge by way of an appropriate
action, albeit as per law.
8.2. As and when an action is instituted, the learned Single
Judge will consider it, as per law.
9. Parties will act based on the digitally signed copy of
this order.
10. Consequently, pending application shall stand closed."
4. At this juncture, it would be relevant to note that JBM Electric was
debarred/blacklisted by MHI on account of its alleged failure to disclose that
the Global Group Revenue (GGR) figure mentioned in its application
preferred under the PLI scheme included revenue earned through intra-group
sales. This, according to MHI, violated Clause 41 of the Integrity Pact
Undertaking given at the time when JBM Electric had applied under the PLI
Scheme.
4.1. As per Clause 3.22 of the PLI Scheme, the threshold eligibility criteria
4. The applicant agrees that if it is found that the applicant has made any incorrect statement on the
subject, the application will be closed or rejected and MHI reserve the right to initiate legal action of
whatsoever nature. In case if MHI has disbursed the incentives under PLI, the amount disbursed to
applicant be recoverable along with interest calculated at three years SBI MCLR prevailing on the date of
disbursement, compounded annually besides blacklisting of the applicant and initiation of legal action of
whatsoever nature at the discretion of MHI.
3.2 Eligibility: The applicant company or its Group company(ies)will need to meet the following
common criteria to qualify and receive benefits under the Scheme:
Basic Eligibility Criteria:
(a) For company or its Group company(ies) with existing presence in India or globally in the
Automotive vehicle and components manufacturing business:
Eligibility Criteria Auto OEM Auto-Component
Global group* Revenue Minimum Minimum ₹10,000 Minimum ₹500 crore.
₹500 crore.(from automotive and/or crore.
auto component
manufacturing)
Investment Global Investment of Global Investment of
Company or its Company or its Group*
Group* Company(ies) Company(ies) in fixed
in fixed assets (gross assets (gross block) of
block) of ₹3,000 ₹150 crore.
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which an applicant had to meet was a GGR of Rs. 10,000 crores. According
to MHI, JBM Electric had incorrectly pegged its GGR at Rs. 10,590.74 3
crores which included intra-group sales worth Rs. 910.54 crores.
4.2. The learned Judge in the second impugned judgment has alluded to the
fact that none of the tender documents required the applicants to exclude
intra-group sales while reporting their GGR figures. In this context,
reference was made by the learned Single Judge to both the PLI Scheme as
well as the PLI Guidelines. The learned Single Judge also took into account
the definition of GGR given in paragraph 2.164 of PLI Guidelines which
defined GGR as the total revenue of group companies from automotive and
auto component manufacturing activity in a given year.
4.3. The fact that UOI and other official respondents had not drawn his
attention to any recognised norm which obtained in the industry or an
accounting standard, fortified him in concluding that the allegation made
against JBM Electric, that it had made a deliberate misstatement or a
misleading declaration, was unsustainable. According to him, in the absence
of a clear and explicit stipulation which mandated the exclusion of intra-
group sales, the debarment/blacklisting of JBM Electric was unjustified.
That said, the learned Single Judge, after quashing the impugned
*Group Company(ies) shall mean two or more enterprises which, directly or indirectly, are in a position to:
Exercise twenty-six percent or more of voting rights in the other enterprise; Or Appoint more than fifty
percent of members of Board of Directors in the other enterprise. (As defined in the FDI Policy Circular of
2020)
Note: i. Above Eligibility criteria to be met based on audited financial statements for year ending March
31, 2021. ii. An applicant company or its Group company(ies) must satisfy the entire eligibility criteria to
be eligible under the scheme.
Although the GGR figure noted in the communication dated 29.04.2022 issued by IFCI Ltd. is
Rs.10,590.74 crores, JBM Electric's online application for the PLI Scheme appended with LPA 500/2022
indicates that that the figure is Rs.10,590.75 crores.
2.16 Global Group Revenue: Total revenue of the group companies from global operations (from
automotive and auto component manufacturing in a given year).
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communications dated 25.04.2022 and 29.04.2022, as noticed above, made
the following crucial observation in the second impugned judgment:
".....The issues with respect to the eligibility of the petitioner
under the PLI Scheme and its debarment are kept open to be
considered and decided by the respondents afresh and in light
of the observations made hereinabove. The Court further
directs that any proceedings that the respondents may draw in
light of the liberty accorded above, would have to be compliant
with the principles of natural justice. All contentions of
respective parties on merits are kept open."
[Emphasis is ours]
5. Therefore, according to us, two principal issues which arise for
consideration are:
(i) First, whether debarment/blacklisting of JBM Electric by MHI in the
given circumstances was justified?
(ii) Second, if the Court were to hold that MHI was not justified in
debarring/blacklisting JBM Electric, what impact it would have on the fate
of JBM Ecolife, both concerning the subject tender as well as tenders that
MHI will float in the future?
6. Before we get into the nitty-gritty of the arguments advanced before
us it may be useful to etch out the broad contours of the case.
7. On 01.04.2015 the Government of India (GOI) framed a scheme for
giving a fillip to the manufacture of electric vehicles in India. This scheme
came to be known as Faster Adoption and Manufacturing of Electric
Vehicles in India (FAME). This scheme was initially valid for two years and
was extended from time to time. As of now, it would expire on 31.03.2024.
8. Alongside the FAME Scheme, GOI also notified the PLI Scheme for
automotive and auto components. The notification in this behalf was issued
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on 23.09.2021. Guidelines for the PLI Scheme were also notified via a
notification of the same date i.e., 23.09.2021.
8.1. Besides this, on 02.11.2021, the Procurement Policy Division of the
Ministry of Finance, UOI issued an Office Memorandum (OM) titled
"Guidelines for Debarment of Firms from Bidding".
9. It is in this setting that JBM Electric, on 09.01.2022 submitted its
application under the Champion and Component Champion OEM Incentive
Scheme. This scheme was floated under the umbrella PLI Scheme.
10. In and about the same time i.e., on 20.01.2022, Convergence Energy
Services Limited [hereafter referred to as "CESL"] floated a tender for
procurement, operation and maintenance of 5450 electric buses and 135
double-decker electric buses and allied civil, as also electric infrastructure,
albeit, on gross contract basis [hereafter referred to as the "subject tender"].
10.1 To be noted, CESL is a subsidiary of Energy Efficiency Services
Limited [hereafter referred to as "EESL"] which is a joint venture of various
public sector undertakings.
11. On the same date i.e., 20.01.2022 IFCI Ltd. through its officer, one
Mr Aman Gahoi issued a communication whereby it sought the following
information/documents from JBM Electric:
"1. Shareholding certificate and latest financials of group
companies (FY2020-21), considered in the application for
global group revenue and global investment in fixed assets.
2. Define how a particular company is a group company with
the help of Tree Diagram (showing relationship between
companies and shareholding in those company)."
12. The information as sought by IFCI Ltd. was furnished by JBM
Electric via several emails dated 21/22.01.2022.
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13. On 10.02.2022 JBM Electric came to know via a news report
broadcast through a T.V. channel that its application under the PLI Scheme
had been accepted.
14. The record would show that by the end of the day i.e., at 23.59 hrs. on
10.02.2022, a complaint had been received by Mr Aman Gahoi of IFCI Ltd.
via WhatsApp through one Mr Abhishek Goel. The complainant i.e., Mr
Abhishek Goel is a Consultant, who, as per Mr Gahoi is employed with a
consultancy firm going by the name Finex Advisors. Finex Advisors,
according to Mr Gahoi, at the relevant time, was acting as a Consultant for
several tenderers. The record would also disclose that it was Mr Goel, who,
in the first instance, flagged the objection concerning the inclusion of intra-
group sales by JBM Electric in its GGR figure. Although Mr Gahoi claims
that the complaint was received by him in the first instance on 10.02.2022,
the WhatsApp chat between Mr Gahoi and Mr Goel shows that the issue was
raised by him on 07.02.2022, despite which, no perceptible action was taken
until 11.02.2022.
15. The record also discloses that in the morning hours of 11.02.2022,
there was a telephonic interaction between Mr Gahoi and Mr Goel. The
record reveals that Mr Gahoi, thereafter, brought the issue to the notice of
one Mr Kunal Naik, DGM, IFCI Ltd., at about 11.00 hrs. on 11.02.2022.
Apparently, the matter was thereafter, placed before Mr Rajnesh Singh,
Director, MHI and the Joint Secretary, GOI, MHI.
16. The fallout of these meetings was that JBM Electric was excluded
(albeit, without recourse to it) from the final list published by MHI
concerning those applicants whose applications had been approved under the
PLI Scheme.
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17. This triggered a meeting between the representative of JBM Electric
and the officers of IFCI Ltd. on 14.02.2022. It is at this meeting that JBM
Electric was informed that its application under the PLI Scheme was
rejected as it had wrongly included intra-group sales in its GGR figure and
that once intra-group sales were excluded, its GGR would fall below the
minimum eligibility threshold of Rs. 10,000 crores.
18. JBM Electric defended its position and in this context, furnished
information and its defence via communications dated 15.02.2022,
17.02.2022 and 18.02.2022. Besides the said communications, a
communication dated 28.02.2022 was also sent, which was suggestive of the
fact that if the turnover of other entities in the group was added, its GGR
figure would, in any event, be above the prescribed minimum threshold.
19. While JBM Electric's battle regarding the rejection of its application
under the PLI Scheme was on, its sister concern i.e., JBM Ecolife, on
15.03.2022, filed its bid against the subject tender published on CESL's e-
tender portal. As required, JBM Ecolife submitted its bid in two parts: the
first part concerned its technical viability, while the second part related to
price.
20. At 08:44 hrs. on 21.03.2022, CESL sent a link via e-mail informing
the various bidders, including JBM Ecolife, that the price bids would be
opened on that date. However, by 11:06 hrs. the position had changed; the
bidders were informed by CESL that due to a technical glitch obtaining in
the tender portal, the opening of price bids would have to be deferred. It is
pertinent to note that on that very date i.e., on 21.03.2022, Joint Secretary,
GOI, MHI had, apparently, communicated to EESL that JBM Electric had
not met the eligibility criteria under the PLI Scheme.
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21. Nearly a month later, i.e., on 25.04.2022, JBM Ecolife was informed
by CESL that the financial bids would be opened "in a day or two".
21.1 The record discloses that on the same day i.e., 25.04.2022, CESL
received a communication from MHI which inter alia, indicated that since
JBM Electric had violated the Integrity Pact Undertaking, it had been
decided to bar, not only JBM Electric but all its group companies from
progressing the tender and future tenders up until 31.03.2027.
22. This, as it appears, triggered the issuance of the communication dated
26.04.2022, which was issued at 11:25 hrs. Via this communication CESL,
now, directly informed JBM Ecolife that JBM Electric and its group
companies had been barred from progressing the subject tender and that this
decision was based on the communication dated 25.04.2022 received by it
from MHI. Notably, the decision taken by MHI was not enclosed by CESL
in its communication dated 26.04.2022.
22.1 The aforesaid communication was followed by another
communication of even date i.e., 26.04.2022. This communication was sent
at 12:55 hrs. Via this communication, JBM Ecolife was tersely informed by
CESL that its bid had been found "non-responsive for technical evaluation."
Within the next five minutes i.e., at 13:00 hrs. CESL opened the financial
bids concerning the subject tender.
23. Being pushed to the corner, JBM Ecolife moved the writ court the
very next day i.e., 27.04.2022. By this writ petition i.e., WP(C) 6708/2022
JBM Ecolife laid a challenge to the two communications dated 26.04.2022
served by CESL on JBM Ecolife.
24. Curiously, JBM Electric was informed by IFCI Ltd only on
29.04.2022 that it had not only been found ineligible under the PLI Scheme
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but had also been debarred from future tenders along with its group
companies.
25. As noticed right at the outset, JBM Ecolife failed to persuade the
learned Single Judge that it had wrongly been ousted from the subject
tender. Thus, its writ action which was dismissed via the first impugned
judgment, resulted in JBM Ecolife preferring an appeal i.e., LPA 327/2022.
26. This appeal was lodged on 11.05.2022. Almost simultaneously i.e.,
on 12.05.2022, JBM Electric filed a separate writ action before the learned
Single Judge i.e., WP(C) 8047/2022, having wisened up to the fact that its
failure to approach the Court [notwithstanding the fact that it had not been
issued a show cause notice before being debarred/blacklisted by MHI], was
impacting the commercial cause and business interest of its sister concerns
including JBM Ecolife. In this writ petition i.e., WP(C) 8047/2022, JBM
Electric, as noticed hereinabove, impugned the communications dated
25.04.2022 and 29.04.2022 issued by MHI and IFCI Ltd., respectively.
27. JBM Ecolife's appeal i.e., LPA 327/2022, which came to be listed
before a coordinate bench on 13.05.2022, was transferred to the Bench
comprising one of us i.e., Rajiv Shakdher, J. on 17.05.2022. On that date,
while issuing notice in the appeal, it was indicated that the next steps taken
in the matter would be subject to the final outcome of the appeal.
28. The record would also show, something that we have noticed above,
that in JBM Electric's writ petition i.e., WP(C) 8047/2022, although notice
was issued by the learned Single Judge on 13.05.2022, no interim order was
passed. This led to JBM Electric preferring an appeal, which was disposed
of on 27.05.2022 with certain directions, the gist of which is culled out in
paragraph 3.1. above.
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29. JBM Electric's writ petition i.e., WP(C) 8047/2022 was disposed of
by the learned Single Judge via the second impugned judgment. This time
around, since the learned Single Judge ruled in favour of the writ petitioner
i.e., JBM Electric, UOI decided to prefer an appeal. This is how UOI's
appeal i.e., LPA 500/2022, came to be listed before us on 01.09.2022, upon
being transferred by a coordinate bench via order dated 31.08.2022.
30. Because of the interconnection between the appeals, both causes were
heard together.
Submissions of Counsels:
31. Submissions on behalf of UOI were advanced by Mr N. Venkatraman,
learned Additional Solicitor General (ASG), while arguments on behalf of
JBM Electric and JBM Ecolife were put forth by two Senior Advocates i.e.,
Mr Mukul Rohatgi and Mr Sandeep Sethi.
32. The submissions of Mr Venkataraman can, broadly, be paraphrased as
follows :
32.1 Upon an inquiry being conducted pursuant to a complaint received by
the Project Management Authority (PMA), i.e., IFCI Ltd., it was found that
JBM Electric had "surreptitiously" included intra-group sales transaction
within its GGR figure in contravention of Clause 3.2 of the PLI Scheme and
Clause 2.1 of the PLI Guidelines.
32.2 The application filed by JBM Electric disclosed that it had achieved a
GGR of Rs.10,590.75 crores. What was not disclosed was that it contained
intra-group sales worth Rs.910.54 crores. Once this figure was adjusted,
JBM Electric's GGR would fall below the minimum prescribed eligibility
threshold of Rs.10,000 crores. This was an aspect which was deliberately
kept under wraps by JBM Electric while filing its application under the PLI
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Scheme.
32.3 IFCI Ltd. in its capacity as a Project Management Agency (PMA) had
brought the aforesaid aspect to the notice of the representative of JBM
Electric at a meeting convened on 14.02.2022. JBM Electric, on its part, had
sought to defend its position via representations made through e-mails dated
15.02.2022 and 17.02.2022. Since JBM Electric had made a false
declaration concerning its GGR, the provisions of Clause 4 of the Integrity
Pact/Undertaking were triggered and a decision was taken by MHI to
debar/blacklist JBM Electric and its sister concerns/group companies. This
decision was taken by MHI, which was communicated to CESL on
25.04.2022. CESL, on its part, communicated MHI's decision to JBM
Ecolife, the sister concern of JBM Electric, on 26.04.2022. IFCI Ltd.
communicated the decision to JBM Electric on 29.04.2022.
32.4 There can be no doubt that JBM Electric was required to exclude
intra-group sales while furnishing the GGR figure. This is a conclusion that
one could reach upon a plain reading of the definition of GGR given in
Clause 2.16 of the PLI Guidelines. The definition, in no uncertain terms,
provides that GGR is concerned with the "total revenue of the group
companies from global operations." The expression "global operations"
unmistakably points to such transactions which are undertaken by the
applicant with third parties.
32.5 Furthermore, the well-established accounting standards/principles
commend the exclusion of intra-group sales; an aspect qua which
knowledge can be attributed to JBM Electric, having regard to the fact that
its application under the PLI Scheme was filed by its Chief Financial
Officer, one Mr Vivek Gupta.
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32.6 The inclusion of intra-group sales was not without reason as JBM
Electric, which had applied under the PLI Scheme, had zero revenue from
automotive and/or auto component manufacturing; besides the fact that it
had zero net worth as on 31.03.2021.
32.7 The exclusion of intra-group sales is necessary as it makes
adjustments against the "double counting" of sales made by JBM Electric to
its sister concern(s) within the JBM Group.
32.8. This is an aspect which emerges upon a plain reading of the Guidance
Note concerning Consolidated Financial Statements issued by the Institute
of Chartered Accountants of India [hereafter referred to as "ICAI"] and
Accounting Standard [AS] 21.
32.9. The submission made on behalf of JBM Electric based on AS110 that
intra-group sales need to be excluded only if there is a parent/subsidiary
relationship between entities is misconceived as the said AS does not
preclude the application of AS 21 while preparing consolidated financial
statements of sister concerns which form part of a business group.
32.10 If this principle is not applied, a business group, which seeks to avail
of loans, subsidies and other benefits, would gain an unfair advantage as it
could inflate its revenue figures.
32.11 UOI cannot permit the subsistence of a non-level playing field when
it, inter alia, involves the disbursal of public funds.
32.12 The other submission advanced on behalf of JBM Electric that
debarment/blacklisting could be ordered only if the applicant had availed of
the benefit under the PLI Scheme is erroneous for the reason that if a false
declaration was made, as it is contended on behalf of UOI, the consequences
should be the same, whether or not the applicant succeeded in its attempt to
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secure the desired benefits.
32.13 Given the aforesaid submissions, it is clear that the infraction
committed by JBM Electric of including intra-group sales while calculating
GGR is not in dispute. Therefore, given this admitted fact, the learned Single
Judge ought not to have set aside the impugned communications. This is a
case where the learned Single Judge had issued a futile writ as the result
even after remand would be no different.
32.14 The government i.e., MHI has an inherent right to debar entities, even
if there was no express stipulation provided in the tender. There are several
cases where the courts have upheld the debarment of entities where incorrect
information was provided or vital information was withheld.
32.15 The MHI, as a matter of procedure, could delegate the task of
receiving representations to another entity before taking a decision on the
applications filed under the PLI Scheme.
32.16 In support of the aforesaid submissions, reliance was placed on the
following judgments :
(i) Amit Kumar v. State of U.P. AIR 2021 (NOC 616) 234
(ii) James Edward Jeffs & Ors. v. New Zealand Diary Production and
Marketing Board (1967) 1 AC 551.
(iii) Patel Engg. Ltd. V. Union of India (2012) 11 SCC 257
(iv) Otik Hotels & Resorts Pvt. Ltd. V. Indian Railway Catering &
Tourism Corporation Ltd. (2010) 169 DLT 459
(v) Centurion Laboratories (Division of Centurion Remedies Pvt. Ltd.)
v. State of Kerala AIR (2021) (NOC 36) (14)
(vi) Techno Precision Engineers Pvt. Ltd. V. Western Coalfields Ltd.
(2014) 2 AIR Bom R 511
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33. Although, Dr. Abhishek Manu Singhvi, learned Senior Counsel had
joined proceedings via V.C. on behalf of TATA Motors Ltd. [TML]; no
separate oral submissions were advanced by him. Apparently, TML seeks to
ride alongside UOI, whose stand has been articulated by Mr Venkataraman.
33.1 The record shows that in LPA No.327/2022, TML has filed a reply
which takes the same position that has been broadly advanced by Mr
Venkataraman albeit, with some greater emphasis on certain aspects that
have already been touched upon on behalf of UOI. This approach stands to
reason as TML is hopeful of securing the subject contract in case JBM
Ecolife were to be excluded from the race, provided it is declared as the next
lowest bidder. As noticed above, JBM Ecolife has asserted before us that it
is the lowest bidder and has been ousted from the race for securing the
subject tender on extraneous grounds.
33.2 We may note that TML has also made a claim that JBM Ecolife's bid
may get impacted if JBM Electric's application under the PLI Scheme
stands rejected.
34. On the other hand, Messrs Rohatgi and Sethi made the following
submissions on behalf of JBM Electric and JBM Ecolife.
34.1. The application under the PLI Scheme was an online application
which had limited fields. Therefore, the steps that the applicant [in this case,
JBM Electric] was required to take were simply the following:
(i) In the first instance, the applicant was to identify group companies as
defined in the PLI Scheme.
(ii) The next step involved crystalizing the revenue which each of the
companies falling in the group had earned from manufacturing activity.
(iii) In arriving at the GGR, the applicant was required to add up the
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revenue earned by each of the companies which formed part of the group
from manufacturing activities.
34.2 There was no indication whatsoever in the PLI Scheme, PLI
Guidelines and/or FAQs that the applicant(s) was/were required to exclude
intra-group sales while framing up its/their GGR figure.
34.3 There was no misdeclaration as alleged or at all. JBM Electric had not
only furnished an annual report of its holding company but had also
submitted duly audited financial statements of its group companies in
support of the GGR figure mentioned in the application filed under the PLI
Scheme. The self-certification of the revenue from the group companies was
also filed along with the application.
34.4 The financial statements of its group companies [that were submitted
by JBM Electric] were aligned with the provisions of AS 24 which requires
disclosure of all "related party" transactions. The related party transactions
are thoroughly examined by statutory auditors and also form part of the
notes to the accounts, which are included in the concerned balance sheets.
Therefore, to even suggest that intra-group sales were surreptitiously added
to the GGR figure is far from true.
34.5 The allegation made by UOI, based on the chart submitted by JBM
Electric along with its e-mail dated 15.02.2022, that there has been double or
even triple accounting of sales is baseless, apart from the fact that there was
no attempt to mislead. It is required to be emphasised that each group
company manufactures different components according to its core
competency. Once a product is manufactured by one company and sold to
another company within the same group, the latter company makes a value
addition which changes the nature of the product before it is sold to a third
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party. The transactions between two or three group companies are on an
arm's length basis. Thus, while calculating GGR under the PLI Scheme,
JBM Electric did not take into account trading/input sales. It only took into
account revenue which was derived by a company within the group from its
manufacturing activity. This aspect is recognized by PLI Scheme as is
evident from a perusal of the definition of "manufacturing" set out in Clause
2.21 of the said scheme.
34.6 Since the product sold by a company to another within the same group
forms the raw material for the latter, the value addition made by the
purchasing company before it is sold to a third party makes out a case of
inclusion of both intra-group sales as well as the sales made to third parties
while arriving at the GGR figure. As adverted to above, both sale values
were rightly included in GGR as they were derived from independent
activities concerning the manufacture of automotive and/or auto
components.
34.7 The guidance note and AS 21 is wrongly been relied upon by UOI to
justify its stand that a false declaration concerning GGR had been made by
JBM Electric. It requires to be noticed that while there is a reference to the
alleged wrongful inclusion of intra-group sales by JBM Electric while
arriving at GGR, there is no averment whatsoever in the pleadings
concerning the Guidance Note or AS 21.
34.8 The reliance on Guidance Note and AS 21 was made in the course of
arguments, albeit, across the bar, before the learned Single Judge. That said,
the Guidance Note on which reliance is placed by UOI caters to specific
situations i.e., for instance, if financial information is sought for use in
Initial Public Offerings (IPOs), demergers, takeovers, etc. In such situations,
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while preparing combined financial statements, it is advised that the same
principle should be followed as those which apply to consolidated financial
statements. In other words, when combined financial statements are
prepared, inter alia, intra-group transactions and profits or losses should be
excluded. Thus, the guidance note, apart from being recommendatory, has
no general application in all situations, which will include a situation, which
arose in the instant case, i.e., an application being preferred under the PLI
Scheme.
34.9 Likewise, AS 21 has no applicability to the instant case. AS 21
concerns principles to be adopted while preparing consolidated financial
statements. JBM Electric, as is evident, was required to place on record its
GGR and not financial statements. The objective with which AS 21 has been
framed is to provide information about the parent/holding company and its
subsidiaries as a single economic entity. The emphasis is, thus, on economic
resources controlled by a group.
34.10 PLI Scheme, on the other hand, was framed with a different objective
and therefore, the GGR figure was sought to assess the applicant's
manufacturing capability. It is keeping this in mind, that the definition of
"GGR" is provided in Clause 3.2 of the PLI Scheme. Therefore, according
to JBM Electric, it rightly included revenue earned by its group companies,
albeit, from manufacturing activities, both, on account of sales carried out
within the group and those that were carried out with third parties falling
outside the group.
34.11 The allegation that JBM Electric had made a false declaration is
utterly unsustainable for two reasons.
(i) First, as submitted above, the documents filed by JBM Electric
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included the intra-group sales transactions. IFCI Ltd. which was responsible
for evaluating and scrutinizing the documents submitted by applicants had
found no irregularity or inaccuracy in the contents of the application filed on
behalf of JBM Electric.
(ii) Second, a complaint was received by Mr Gahoi of IFCI Ltd., which
was based on documents that were already available with IFCI Ltd.
34.12 Therefore, the decision taken to reject JBM Electric's application was
an afterthought which was triggered by a complaint lodged at the nth hour
by someone who had no locus to intercede in the evaluatory process.
34.13 The record would show that Mr Gahoi of IFCI Ltd. had received the
complaint via WhatsApp at 23:59 hrs. on 10.02.2022 which was a day prior
to when the list of applicants who had been declared successful under the
PLI Scheme was required to be published. It is obvious that vital
information was being leaked by Mr Gahoi or somebody in his office to
third parties who were interested in derailing JBM Electric's application
preferred under the PLI Scheme. The action of, both, UOI and IFCI Ltd.
smacks of malafides.
34.14 The complaint ought not to have been entertained and instead JBM
Electric's name should have been included in the list published by MHI
concerning those applicants who were found eligible for grant of benefits
under the PLI Scheme.
Analysis and Reasons:
35. Having examined the record and heard the counsel for the parties in
support of their respective cases, as alluded to above, there are two broad
issues which arise for our consideration.
(i) First, whether MHI was justified, in the given facts and
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circumstances, to straightaway debar/blacklist JBM Electric.
(ii) Second, if we were to find that MHI's action is not justified, how
would it impact the fate of JBM Ecolife, which stood excluded from the race
to win the subject tender because its group company i.e., JBM Electric had
been debarred/blacklisted.
36. Insofar as the first issue is concerned, it is the common case of parties
that JBM Electric had pegged its GGR at Rs.10,540.75 crores and that this
figure, although above the minimum prescribed threshold which was set at
Rs.10,000 crores, included intra-group sales transactions amounting to
Rs.910.54 crores. Therefore, if the intra-group sales transactions are
excluded, as is contended on behalf of UOI, JBM Electric's GGR would fall
below the minimum threshold i.e., Rs.10,000 crores.
36.1. Thus, while the aforesaid facts are not in dispute, what contesting
parties wrangle about is, one, whether there was any obligation cast on JBM
Electric to exclude intra-group sales and, two, whether, in the given
circumstances, the inclusion of intra-group sales would tantamount to
misrepresentation/misdeclaration, leading without more, to
blacklisting/debarment.
37. The argument advanced on behalf of UOI that JBM Electric was duty-
bound to exclude intra-group sales, is based on a rather tenuous and/or
amorphous plea. This plea, in effect, boils down to the argument that
anyone, who is well-versed in the preparation of financial statements and
submission of information based on such statements, should have known
that GGR figure could not have included intra-group sales.
38. Before we examine this contention further, it would be relevant to
note what is not in dispute; only to lend a certain perspective to the
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submissions advanced before us on this count.
38.1 Notably, the aforesaid stand articulated on behalf of UOI, cannot
derogate from the position that the audited financial statements submitted by
JBM Electric adverted to related party transactions. Pertinently, in the
course of the oral arguments, we heard no submission made on behalf of
UOI denying this stand which was explicitly taken on behalf of JBM
Electric.
38.2 Therefore, once the material based on which GGR was calculated,
was placed by JBM Electric for consideration and evaluation by the PMA
i.e., IFCI Ltd., it becomes evident that the financial expert who advised JBM
Electric had a different understanding of how GGR had to be calculated.
39. UOI has asserted that there is only one way of understanding the
purport, scope and ambit of what constitutes GGR. This argument is
founded on the approach recommended by ICAI while preparing combined
financial statements. It is no one's case, least of all UOI's, that JBM Electric
was called upon to draw combined financial statements of all entities which
formed part of the group. Instead, what has emerged is that JBM Electric
was required to, inter alia, provide the revenue earned by each of the
companies that formed part of the group which in turn was derived from
manufacturing automotive and auto components. The summation of the
revenues earned by each entity in the group was required to be given as
GGR.
40. Insofar as the "Guidance Note on Combined and Carve-out Financial
Statements" issued by ICAI is concerned, on which UOI has placed reliance,
the following clauses shed light on the scope and ambit of the said Guidance
Note:
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"Introduction
1. Generally, consolidated financial statements of an entity
are required to be presented under the relevant legal or
regulatory requirements. In India, these requirements are
met by presenting consolidated financial statements
prepared under the applicable Accounting Standards.
2. There may be occasions such as take-overs of entities
and/or divisions/segments/businesses, demergers, spin-offs,
initial public offerings, etc. where specific financial
information is required for part or parts of entities which
may or may not be part of a group. Similarly, group
financials may be required for group loan arrangements.
The term „group‟, in such cases, for the purpose of this
Guidance Note may include the entities and/or
divisions/segments/businesses which are being combined as
per the terms of the loan arrangement. In the absence of
control, preparation of consolidated financial statements
would not be appropriate. In such cases, as well as to
present relevant combined financial information of part or
parts of one or more entities, combined financial statements
may be prepared....
xxx xxx xxx
Objective
6. This Guidance Note provides the meaning of
combined/carve-out financial statements, indicative
situations in which these may be required to be prepared
and procedure for preparation of the same and required
disclosures.
Scope
7. This Guidance Note applies in the preparation and
presentation of combined/carve-out financial statements.
8. This Guidance Note should not be construed to be
applicable to the general purpose financial statements as
the combined/carve-out financial statements are prepared
for specific purposes and, therefore, are 'special purpose
financial statements'.
xxx xxx xxx
Definitions
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9. The following terms are used in the Guidance Note with
the meanings specified :
xxx xxx xxx
Combined Financial Statements : Combined financial
statements are the financial statements that present the
combined historical financial information of combining
businesses that do not comprise a group for which the
consolidated financial statements can be prepared.
xxx xxx xxx
Circumstances in which Combined/Carve-out Financial
Statements may be prepared
11. Combined financial statements can be prepared in cases
where:
a) two or more entities are combined in their entirety; or
xxx xxx xxx
Preparation of Combined Financial Statements
Procedure for preparation of combined financial
statements for two or more entities
14. The guidance given in paragraphs 15 and 16 is
applicable for preparation of combined financial statements
for combining businesses of two or more entities in their
entirety.
15. The procedure for preparing combined financial
statements of the combining entities is the same as that for
consolidated financial statements as per the applicable
Accounting Standards. Accordingly, when combined
financial statements are prepared, intra-group transactions
and profits or losses should be eliminated, and non-
controlling interests, foreign operations, different financial
reporting periods, accounting policies or income taxes
should be treated in the same manner as in consolidated
financial statements prepared under the applicable
Accounting Standards.
xxx xxx xxx"
40.1 A perusal of the clauses of the Guidance Note would show that where
consolidated financial statements are not available and financial information
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is required in certain situations, such as the takeover of entities, demergers,
spin-offs or IPOs concerning entities which may or may not form part of the
group--such information, if sought, can be presented as a combined
financial statement or carve-out financial statements.
41. As noted above, no such obligation was cast on the applicants while
filing their applications under the PLI Scheme. The information that was
sought via the online application was under the following heads :
(i) Name of the company.
(ii) Registered address.
(iii) Registration number.
(iv) Relationship with the group company.
(v) Revenue from automotive and/or auto component
manufacturing (for existing automotive manufacturing
company). This was the information to be given for FY 2020-
2021 (Rs. in crores).
(vi) Investment in fixed assets (gross block) (for existing
automotive manufacturing company) as on 31.03.2021.
(vii) Net worth (for new non-automotive investment
company) (Rs. in crores).
41.1 None of these columns even remotely indicated that revenue earned
through intra-group sales had to be excluded.
42. Likewise, AS 21, which is also relied upon by UOI, has very specific
objective criteria i.e., preparation and presentation of consolidated financial
statements, which are used by parent/holding companies to provide financial
information about the economic activities of its group. Clause 16 of AS 21,
on which reliance has been placed by UOI, would have to be viewed in the
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light of the objective and the scope outlined in AS 21. The relevant parts of
AS 21 are extracted hereafter:
"Objective
The objective of this Standard is to lay down principles and
procedures for preparation and presentation of consolidated
financial statements. Consolidated financial statements are
presented by a parent (also known as holding enterprise) to provide
financial information about the economic activities of its group.
These statements are intended to present financial information
about a parent and its subsidiary(ies) as a single economic entity to
show the economic resources controlled by the group, the
obligations of the group and results the group achieves with its
resources.
Scope
1. This Standard should be applied in the preparation and
presentation of consolidated financial statements for a group of
enterprises under the control of a parent.
2. This Standard should also be applied in accounting for
investments in subsidiaries in the separate financial statements of a
parent."
xxx xxx xxx
"16. Intragroup balances and intragroup transactions and
resulting unrealised profits should be eliminated in full. Unrealised
losses resulting from intragroup transactions should also be
eliminated unless cost cannot be recovered."
42.1 Clearly, the subject Guidance Note had not been made part of the
format application form evolved for those seeking to apply the PLI Scheme,
even by way of reference. The subject Guidance Note, in particular, Clause
16, could have been relied upon by UOI had they sought a combined
financial statement of all constituents of the applicant group [in this case, the
JBM Group]. The reference to the consolidated financial statement [as per
applicable accounting standard i.e., AS 21] would have helped the cause of
UOI had the Guidance Note been made applicable to applications submitted
under the PLI Scheme.
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42.2 The intrinsic evidence available is suggestive of the fact that IFCI
Ltd., on evaluation of the application along with the material furnished by
JBM Electric, had found no irregularity in the calculation of GGR.
42.3 IFCI Ltd. is a financial institution having a bevvy of accounting and
financial experts who would have flagged the issue concerning the inclusion
of intra-group sales if, according to it, an applicant, while calculating its
GGR, ought not to have included intra-group sales. Evidently, this was not
the understanding of IFCI Ltd till it was egged on by a rank outsider.
43. The submission of Mr Venkataraman that the onus for disclosing the
inclusion of intra-group sales could not be shifted to the UOI, misses two
crucial points. First, this argument could have been sustained if there was an
explicit requirement to exclude intra-group sales while calculating GGR.
Second, the UOI through the PMA i.e., IFCI Ltd. had sought relevant
material [i.e., financial statements of group companies] from which the
information concerning revenue earned by each one of the constituents for
FY 2020-2021 through activities involving the manufacture of automotives
or auto components was ultimately extracted. As alluded to above, the
audited financial statements, according to JBM Electric, adverted to related
party transactions and, therefore, information concerning intra-group sales
transactions was always available with UOI's financial evaluator i.e., IFCI
Ltd.
44. This brings us to the second aspect which is, whether JBM Electric
indulged in misrepresentation or misdeclaration in submitting the GGR
figure. The answer to this poser lies in the facts adverted to hereinabove.
There is no denial of the fact that the financial statement of each of the
constituents was submitted by JBM Electric along with its application form
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filed under the PLI Scheme. In any event, even before the issuance of the
orders impugned in the writ petitions, the financial statements of the JBM
group constituents were furnished along with emails dated 21.01.2022 and
22.01.2022.
44.1. JBM Electric, as advised, it appears, verily believed that intra-group
sales could be included in arriving at GGR. JBM Electric's stand is that
what they have included in its intra-group sales transaction is only the
revenue component and not the trading/input sales. It has also been argued
that each of such constituents is independently carrying out its
manufacturing activity and the product manufactured by one group company
which is bought by another constituent of the group is acquired as raw
material, which once worked upon, morphs into a new product before it is
sold to an unconnected third party/customer. The purchasing constituent
company, thus, makes a value addition before offloading the product to an
unconnected third party/customer. Therefore, the contention advanced on
behalf of JBM Electric is that it had rightly included intra-group sales while
calculating the GGR.
45. Therefore, in our view, even if we were to assume, for the sake of
argument, that UOI is right in its contention that intra-group sales ought not
to have been included while arriving at the GGR figure, it certainly is not a
case of misrepresentation or false declaration.
45.1 At worst, from the point of view of JBM Electric, it would be a case of
misconception. If that is the position, we are of the opinion that MHI could
not have straightaway debarred/blacklisted JBM Electric without issuing a
proper show-cause notice and calling upon it to explain its position.
46. We are also not impressed with the submission made on behalf of
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UOI that since at the meeting held on 14.02.2022 between the
representatives of IFCI Ltd. and those of JBM Electric, the basis for
rejecting the application had been brought to the fore, the rudiments of
principles of justice stood fulfilled, for the reason that the principles of
natural justice are founded on the well accepted universal norm that justice
is not only done but should also manifestly seen to be done.
46.1 Though, principles of natural justice do not lie in a straight jacket and
in their application [depending on the kind of inquiry and the subject matter
which is being inquired into], a certain amount of flexibility may have to be
factored in, it still does not efface the right of the affected party to insist that
it ought to be put to notice both as regards the charge levelled against it and
the possible penalty that would follow if the charge was proved.
46.2 This principle would apply with greater force where the penalty
imposed could lead to grave civil and criminal consequences.
Blacklisting/debarment is a grave civil consequence for a business entity. It
leads to a loss of reputation, goodwill and trust in business circles; which is
why, even when the period of debarment/blacklisting is over, the aggrieved
party continues to litigate only to defend its reputation and goodwill.
47. Thus, for the very same reasons, we are not persuaded to accept the
submission advanced on behalf of UOI that the learned Single Judge had
issued a futile writ, as on remand the result would be no different. This
submission of UOI is premised on the argument that there is no dispute
concerning the fact that JBM Electric had factored in intra-group sales while
calculating the GGR.
48. To appreciate this submission, one would have to examine the
contours of Clause 4 of the Integrity Undertaking Pact. For the sake of
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convenience, the same is extracted hereafter:
"4. The applicant agrees that if it is found that the applicant has
made any incorrect statement on the subject, the application
will be closed or rejected and MHI reserve the right to initiate
legal action of whatsoever nature. In case if MHI has disbursed
the incentives under PLI, the amount disbursed to applicant be
recoverable along with interest calculated at three years SBI
MCLR prevailing on the date of disbursement, compounded
annually besides blacklisting of the applicant and initiation of
legal action of whatsoever nature at the discretion of MHI."
48.1 A careful perusal of the aforementioned clause would show that it can
be read in two parts and, perhaps, in two ways. The first part provides that
where MHI concludes that an incorrect statement has been made by an
applicant, it has various options available with it, which include closure or
rejection of the application and initiation of legal action "of whatsoever
nature". The second part of the very same clause provides that if MHI has
disbursed incentives under the PLI Scheme [based obviously on the
statements made by the applicant], which are found to be incorrect, MHI has
a right to seek its recovery along with interest calculated at three years at
SBI MCLR prevailing on the date of disbursement; compounded annually.
In addition to recovery of the incentives along with interest, MHI is also
empowered to blacklist the applicant and initiate legal action, of whatsoever
nature, albeit, at its sole discretion.
48.2 Therefore, what emerges is that MHI has a slew of options available
to it once it concludes that an incorrect statement has been made in an
application filed for obtaining benefits under the PLI Scheme.
48.3 Mr Venkatraman's argument that whether or not incentives under the
PLI Scheme are disbursed, MHI has the power to blacklist, is one way of
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looking at the clause. The other way of interpreting the clause [an
interpretation espoused by Messrs Rohatgi and Sethi] is that the punishment
of blacklisting could be imposed on a delinquent applicant only if disbursal
of incentives under the PLI Scheme takes place as such an eventuality would
have caused loss to the public exchequer.
48.4 We will, for the moment, accept the construction placed on Clause 4
by Mr Venkatraman. In other words, even when incentives under the PLI
Scheme have not been disbursed, but the application is closed or rejected by
MHI because of an incorrect statement made therein, MHI would not be
denuded of its power to blacklist an applicant. That said,
blacklisting/debarment is clearly one of the very many options available to
MHI. It is precisely for this reason that MHI needed to issue a show cause
notice to JBM Electric which would not only advert to the charge levelled
against it but also to the penalty it proposed to impose on JBM Electric. It is
quite possible that after according a hearing to its authorized representative,
it could conclude that this was a case in which JBM Electric should be
blacklisted/debarred. It is also possible that after hearing the authorized
representative of JBM Electric and examining the material on record, even if
it chose to impose the penalty of blacklisting, the period could be lesser than
that which is indicated in the impugned communication. There are, thus, a
whole host of options which are available to MHI.
48.5 The MHI, however, by virtue of its decision to debar/blacklist JBM
Electric, has thrown to the wind every known principle of natural justice.
The competent authority needed to bear in mind, if nothing else, that JBM
Electric, which, according to it, is the delinquent applicant, needed to be
heard before a decision was reached as to the penalty imposed on it on
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account of the alleged infraction.
49. Therefore, according to us, the impugned communications dated
25.04.2022 and 29.04.2022 issued by MHI and IFCI Ltd. respectively, have
been correctly quashed by the learned Single Judge via the second impugned
judgement.
50. This brings us to the connected issue, which is, what would be the fate
of JBM Ecolife.
51. There is very little doubt in our minds that the first impugned
judgment was founded on the fact that since JBM Electric had been
debarred/blacklisted, Clause 16 of the Guidelines on Debarment of Firms
kicked-in. To be noted, the aforementioned guidelines were issued under the
Office Memorandum dated 02.11.2021 issued by Government of India,
Department of Expenditure, Ministry of Finance, Procurement Policy
Division.
51.1. The following observations made in paragraph 62 of the first
impugned judgment make this amply clear :
"62. Having noticed the principles that would govern, this would be an
appropriate stage to revert to the facts of the present case. As noticed
hereinabove, the impugned action is based principally on the
debarment and blacklisting of the allied firm/sister concern of the
petitioner-JBM Electric. The orders of 25 and 29 April 2022 carry an
unambiguous command to debar JBM Electric as well as all its group
companies. Both JBM Electric and JBM Ecolife are wholly owned
subsidiaries of JBM Auto. The Court has already noticed the
shareholding structure of the two companies as well as the aspect of
commonality of its key managerial personnel. The moment JBM
Electric came to be debarred, all related entities and group companies
were also rendered ineligible from participating in tender proceedings
initiated by MHI or other entities connected with the implementation of
projects being overseen and administered by it. As has been observed in
the preceding paragraphs of this decision, the provisions engrafted in
the Guidelines envisage a "self-activating" debarment the moment an
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allied firm/sister concern comes to be blacklisted. The disqualification
of the petitioner was thus, an inevitable fallout, an inescapable
consequence. Regard must also be had to the fact that no fruitful
purpose could have been possibly served by the second respondent
placing the petitioner on notice. This since it would have been clearly
beyond its province to examine or consider any challenge that the
petitioner may have taken or urged with respect to the order of 29 April
2022. The Court, in the facts of the present case, thus finds that while
the petitioner may not have been afforded an opportunity of hearing, no
prejudice stood caused to it. A notice to the petitioner prior to the
issuance of the impugned communication would have thus clearly been
an empty formality."
52. Since, the impugned communications dated 25.04.2022 and
29.04.2022 issued by MHI and IFCI Ltd. respectively, concerning
debarment of JBM Electric and group companies have been quashed by the
learned Single Judge via the second impugned judgment which has been
sustained by us, the logical sequitur would be that the first impugned
judgment would have to be set aside.
52.1 We may also take note of the fact that when LPA No.357/2022 was
disposed of at the hearing held on 23.05.2022, we were informed by counsel
for UOI/MHI, based on instructions, that the debarment of JBM Electric was
limited to tenders issued by MHI and not with regard to tenders issued by
other ministries and departments of GOI.
53. Before we conclude, we intend to briefly deal with the judgements cited
on behalf of UOI.
54. The first in line is the judgement of the Allahabad High Court in the
matter of Amit Kumar v State of U.P. and Another ;(2020) ALR 290. This
was a case where the petitioner had approached the Court for relief inter
alia, on the ground that he had been permanently blacklisted from applying
for tenders issued by the Department of Food and Civil Supplies, Uttar
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Pradesh. It was contended that the impugned action was violative of
principles of natural justice and more particularly because the impugned
action had been taken recourse to without affording reasonable opportunity
to the petitioner.
54.1. The reason the impugned action had been taken against the petitioner
was, that contrary to the guidelines issued for the award of a contract which
stipulated that no close relative should be a wholesale dealer or Aarhatiya,
the petitioner had bid for the subject contract, knowing fully well that his
mother was an owner of rice mill.
54.2. It is in this context that the Court, after noticing the judgement of the
Supreme Court in Kulja Industries Ltd v Chief General Manager, W.T.
Project, BSNL; (2014) 14 SCC 731, in which the Supreme Court inter alia,
has held that blacklisting cannot run for an indefinite period, refused to issue
a writ on the ground that as long as the petitioner's mother continued to
remain the owner of the mill, the eligibility criteria would come in his way
in bidding for future contracts.
54.3. The court, however, made it clear that if the eligibility criteria was
varied or modified and if the petitioner otherwise came within the prescribed
criteria, it would be open for him to approach the concerned authority for
withdrawing the order of blacklisting.
54.4. This judgement, in our view, would have no applicability, as the
concerned authority is required not only to decide whether or not intra-group
sales could have been included in calculating the GGR, but also as to the
punishment that is to be accorded in the instant case; both aspects need
adjudication once a proper show cause notice is framed in that behalf and
served on JBM Electric. This is not a case of a futile writ being issued as is
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contended on behalf of UOI. The following observations of the Supreme
Court in the case of SL Kapoor v Jagmohan; (1980) 4 SCC 379 will make
this abundantly clear:
17. Linked with this question is the question whether the failure
to observe natural justice does at all matter if the observance of
natural justice would have made no difference, the admitted or
indisputable facts speaking for themselves. Where on the
admitted or indisputable facts only one conclusion is possible
and under the law only one penalty is permissible, the court
may not issue its writ to compel the observance of natural
justice, not because it approves the non-observance of natural
justice but because courts do not issue futile writs. But it will be
a pernicious principle to apply in other situations where
conclusions are controversial, however, slightly, and penalties
are discretionary.
18. In Ridge v. Baldwin [1964 AC 40, 68 : (1963) 2 All ER 66,
73] one of the arguments was that even if the appellant had been
heard by the watch committee nothing that he could have said
could have made any difference. The House of Lords observed
(at p. 68):
"It may be convenient at this point to deal with an
argument that, even if as a general rule a watch
committee must hear a constable in his own defence
before dismissing him, this case was so clear that nothing
that the appellant could have said could have made any
difference. It is at least very doubtful whether that could
be accepted as an excuse. But, even if it could, the watch
committee would, in my view, fail on the facts. It may well
be that no reasonable body of men could have reinstated
the appellant. But as between the other two courses open
to the watch committee the case is not so clear. Certainly,
on the facts, as we know them, the watch committee could
reasonably have decided to forfeit the appellant's pension
rights, but I could not hold that they would have acted
wrongly or wholly unreasonably if they had in the
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exercise of their discretion decided to take a more lenient
course."
19. Megarry, J., discussed the question in John v. Rees [(1970) 1
Ch D 345, 402] . He said (at p. 402):
"It may be that there are some who would decry the
importance which the courts attach to the observance
of the rules of natural justice. „When something is
obvious‟, they may say, „why force everybody to go
through the tiresome waste of time involved in framing
charges and giving an opportunity to be heard? The
result is obvious from the start‟. Those who take this
view do not, I think, do themselves justice. As
everybody who has anything to do with the law well
knows, the path of the law is strewn with examples of
open and shut cases which, somehow, were not; of
unanswerable charges which, in the event, were
completely answered; of inexplicable conduct which
was fully explained; of fixed and unalterable
determinations that, by discussion, suffered a change.
Nor are those with any knowledge of human nature
who pause to think for a moment likely to
underestimate the feelings of resentment of those who
find that a decision against them has been made
without their being afforded any opportunity to
influence the course of events."
20. In Annamunthodo v. Oilfields Workers' Trade Union [(1961)
3 All ER 621, 625 (HL)] Lord Denning, in his speech said (at p.
625):
"Counsel for the respondent Union did suggest that a
man could not complain of a failure of natural justice
unless he could show that he had been prejudiced by it.
Their Lordships cannot accept this suggestion. If a
domestic tribunal fails to act in accordance with natural
justice, the person affected by their decision can always
seek redress in the courts. It is a prejudice to any man-to
be denied justice."
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21. In Margarita Fuentes v. Tobert L. Shevin [32 L Ed 2d 556,
574] it was said (at p. 574):
"But even assuming that the appellants had fallen
behind in their installment payments, arid that they had
no other valid defenses; that is immaterial here. The
right to be heard does not depend upon an advance
showing that one will surely prevail at the hearing. To
one who protests against the taking of his property
without due process of law, it is no answer to say that in
his particular case due process of law would have led to
the same result because he had no adequate defense
upon the merits."
24. The matter has also been treated as an application of the
general principle that justice should not only be done but should
be seen to be done. Jackson's Natural Justice (1980 Edn.)
contains a very interesting discussion of the subject. He says:
"The distinction between justice being done and being
seen to be done has been emphasised in many cases....
The requirement that justice should be seen to be done
may be regarded as a general principle which in some
cases can be satisfied only by the observance of the
rules of natural justice or as itself forming one of those
rules. Both explanations of the significance of the maxim
are found in Lord Widgery, C.J.'s judgment in R. v.
Home Secretary [(1977) 1 WLR 766, 772] , ex. p.
Hosenball, where after saying that "the principles of
natural justice are those fundamental rules, the breach
of which will prevent justice from being seen to be
done" he went on to describe the maxim as "one of the
rules generally accepted in the bundle of the rules
making up natural justice".
It is the recognition of the importance of the
requirement that justice is seen to be done that justifies
the giving of a remedy to a litigant even when it may be
claimed that a decision alleged to be vitiated by a
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breach of natural justice would still have been reached
had a fair hearing been given by an impartial tribunal.
The maxim is applicable precisely when the court is
concerned not with a case of actual injustice but with
the appearance of injustice or possible injustice. In
Altco Ltd. v. Sutherland [(1971) 2 Lloyd's Rep 515]
Donaldson, J., said that the court, in deciding whether
to interfere where an arbitrator had not given a party a
full hearing was not concerned with whether a further
hearing would produce a different or the same result. It
was important that the parties should not only be given
justice, but, as reasonable men, know that they had had
justice or "to use the time hallowed phrase" that justice
should not only be done but be seen to be done. In R. v.
Thames Magistrates' Court, ex. p. Polemis [(1974) 1
WLR 1371], the applicant obtained an order of
certiorari to quash his conviction by a stipendiary
magistrate on the ground that he had not had sufficient
time to prepare his defence. The Divisional Court
rejected the argument that, in its discretion, it ought to
refuse relief because the applicant had no defence to the
charge.
It is again absolutely basic to our system that justice
must not only be done but must manifestly be seen to be
done. If justice was so clearly not seen to be done, as
on the afternoon in question here, it seems to me that it
is no answer to the applicant to say: „Well, even if the
case had been properly conducted, the result would
have been the same. That is mixing up doing justice
with seeing that justice is done (per Lord Widgery, C.J.
at p. 1375)."
In our view the principles of natural justice know of no
exclusionary rule dependent on whether it would have made
any difference if natural justice had been observed. The non-
observance of natural justice is itself prejudice to any man and
proof of prejudice independently of proof of denial of natural
justice is unnecessary. It ill comes from a person who has
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denied justice that the person who has been denied justice is not
prejudiced. As we said earlier where on the admitted or
indisputable facts only one conclusion is possible and under the
law only one penalty is permissible, the court may not issue its
writ to compel the observance of natural justice, not because it
is not necessary to observe natural justice but because courts do
not issue futile writs. We do not agree with the contrary view
taken by the Delhi High Court in the judgment under appeal."
[Emphasis is ours]
55. The next case on which reliance was placed was a decision rendered by
the Privy Counsel in James Edward Jeffs and Ors. v New Zealand Dairy
Production and Marketing Board and Ors.; (1967) 1 AC 551.
55.1 This was a case where the New Zealand Dairy Production and
Marketing Board's decision to make a zoning order concerning factories
from which it could get cream and milk was under challenge. The reason for
the challenge was the financial conflict of interest it had with one of the
entities, which was covered by the zoning order.
55.2 This judgement was cited by UOI for the proposition that MHI's
delegatee could entertain representations before MHI takes a final decision
regarding the applications filed under the PLI scheme.
55.3 The Privy Council, while repelling the challenge on the ground of
conflict of interest, had struck down the zoning order on the ground that it
had failed to hear interested parties, as per its obligation to do so in
discharge of its duty to act judicially while arriving at a determination vis-a-
vis zoning applications.
55.4 The conflict of interest argument, as noticed above, was repelled. This
argument proceeded on the ground that a party cannot be a judge in its own
cause on a reading of the provisions of the statute under which the Board
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was constituted. On reading the language of the statute, the Privy Council
concluded that the legislature had intended to make an exception to the
general rule that a person cannot be a judge in his own cause. The Act,
according to the Privy Council, required the Board to determine zoning
issues, even though its pecuniary interest might get affected.
55.5 This judgment, in our view, instead of helping the cause of UOI, in
our opinion, supports the case set up by JBM Ecolife and JBM Electric.
56. The third case cited on behalf of UOI is the judgment of the Supreme
Court in Patel Engineering Ltd. v Union of India and Anr. (2012) 11 SCC
56.1. This was a case where the bidder i.e., the petitioner was blacklisted
after it had refused to issue a confirmation letter although its bid had been
accepted. This resulted in the respondent no.2/National Highways Authority
of India [hereafter referred to as "authority"], having to award the contract to
another entity at a much lower premium, causing substantial loss to it.
Resultantly, the petitioner/bidder was debarred from participating or bidding
for future projects for one year from the date of the said order being passed.
56.2. Given these facts, the Court refused to intervene with the blacklisting
order. The Court ruled that, since respondent no.2/authority had the power to
enter into a contract by necessary implication it also had the power not to
enter into a contract.
56.3. One cannot quibble with the proposition that UOI has both the power
to enter into a contract and for good reason, also the power not to enter into
a contract. That said, in cases where the State [in this case UOI] so decides,
it will have to conform to the rigour of Article 14 of the Constitution, as
every person has a right to be treated equally when the State seeks to
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establish a contractual relationship. [See Erusian Equipment and
Chemicals Ltd. v State of WB; (1975) 1 SCC 70; this judgement has been
cited with approval in Patel Engineering Ltd; see Paragraph 14 and 15 at
pages 262-263]
57 The other judgement referred to by UOI is the judgement of a Single
Judge of this Court in Otik Hotels and Resorts Pvt Ltd. v Indian Railway
Catering and Tourism Corporation Ltd. ; (2010) 169 DLT 459.
57.1 This case is distinguishable on facts. This was a matter where the
petitioner's licence issued by IRCTC was cancelled on account of IRCTC
being furnished a balance sheet different from the one which was presented
to the Income Tax Department and the Registrar of Companies. The audited
balance sheet which was furnished to the Income Tax Department showed
that the petitioner had a turnover of less than Rs 3 crores for 2003-2004;
thus failing to meet the eligibility criteria. Because there was
misrepresentation by the petitioner concerning sales figures, it was banned
from engaging in future dealings with IRCTC for two years.
57.2. A perusal of the judgement shows that it was the second round of
litigation for the parties. Since there was a failure on the part of IRCTC to
accord time to the petitioner to file a reply to the show cause notice, the
earlier writ petition was disposed of with directions, which effectively,
called upon the IRCTC to deal with the petitioner's defence after it had
submitted a reply to the show cause notice. This judgement, once again, on
facts, has no applicability to the instant case.
58. Likewise, the judgement in Centurion Laboratories (Division of
Centurion Remedies Pvt. Ltd.) v State of Kerala; AIR 2021 (NOC 36) 14,
would also have no applicability, as this was a case where the bidder
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company which was in the business of pharmaceuticals had withheld the
information that it had been blacklisted/debarred from state/central
government agencies. It is in this context that the Court refused to interfere
with the decision taken by Kerela Medical Services Corporation Ltd. to
debar the appellant/company.
59. Similarly, the judgement in Techno Precision Engineers Ltd. v Western
Coalfields Ltd.; (2014) 2 AIR Bom R 511, is distinguishable on facts. This
was a case where the petitioner company and its director was banned for
three years on the ground of cartelisation. The same family had filed three
different tenders via three different concerns, raising a spectre of
underhand/undisclosed understanding,
60. We may also note that insofar as the instant case is concerned, although
TML has taken the stand that if benefits under the PLI scheme are not made
available to JBM Electic, it would impact JBM Ecolife's bid, this contention
has been roundly refuted by JBM Ecolife. We are of the opinion that this is
an aspect that the concerned authority will have to examine on remand.
61. Although we have briefly touched upon the manner in which the
complaint was received by Mr Gahoi of IFCI Ltd., it was not elaborated as
the WhatsApp conversation between Mr Gahoi and Mr Goel are already part
of the record, besides the statements made by the former and Rajnesh Singh,
Director of MHI, before the court.
61.1 However, at this stage, we may note that the exchange of messages
between Messrs. Gahoi and Goel raises concerns with regard to the purity of
the process. It is obvious that the system for evaluation put in place under
the aegis of MHI is less than foolproof and is amenable to influence and
interference from third parties. MHI needs to enquire into this aspect of the
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matter so that in the future, such incidents don't occur. We must note, the
argument advanced on behalf of the UOI that as long as the complaint had
merit it could be progressed further, leaves us with a feeling that the means
are not as important as the end. It is our view that means are as important as
the end. The State, in our opinion, cannot take a contrary position, as,
otherwise, it loses the trust and confidence of the citizenry.
Conclusion:
62. For the foregoing reasons, LPA No.500/2022 preferred by UOI is
dismissed and LPA No.327/2022 preferred by JBM Ecolife is allowed.
Accordingly, the first impugned judgement is set aside. Consequently, the
communication dated 26.04.2022 whereby JBM Ecolife has been held to be
"no longer eligible" to continue its participation in the subject tender process
would have to be quashed. This would also be the fate of the other
communication dated 26.04.2022 which was served on JBM Ecolife by the
e-tender administrator whereby it was informed that its bid was found to be
"Non-Responsive for Technical Evaluation".
62.1 It is ordered accordingly. Both communications dated 26.04.2022
shall stand quashed.
63. Consequentially, JBM Ecolife would now be allowed to participate in
the subject tender from the stage at which it was positioned when it
approached the writ court.
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64. The appeals are disposed of in the aforesaid terms. Pending
applications shall stand closed.
(RAJIV SHAKDHER)
JUDGE
(TARA VITASTA GANJU)
JUDGE
OCTOBER 11, 2022 tr/aj
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