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High Court of Delhi
RAJIV SHAKDHER J.
Israel Military Industries Ltd.
Versus
Union of India & Another
WP(C) No. 2620 of 2012
Decided on : 29-05-2013.
The petitioner, an Israeli military hardware and technology provider, challenged the impugned order passed by the Ordinance Factory Board (OFB) canceling a turnkey contract for setting up a plant for manufacturing By-Modular Charge Systems (BMCS) and debarring the petitioner from further business dealings with OFB for a period of ten (10) years. The petitioner contended that the impugned order was passed without due compliance of the principles of natural justice, as it was not provided with the underlying material forming the basis of the order, including the FIR and chargesheet filed by the Central Bureau of Investigation (CBI) against the then Director General of OFB and his associates for alleged payment of illegal gratification to secure supply orders from OFB. The petitioner also argued that the impugned order was based on the recommendations of a committee constituted by OFB, which heard the petitioner's representatives but was only a recommendatory body, and that the impugned order was passed by persons other than those who heard the petitioner, in violation of the principle that one who hears must decide.
Fact of the Case:
The petitioner, Israeli Military Industries Ltd. (IMI), entered into a Memorandum of Understanding (MOU) with OFB in 2003 to cooperate in the manufacture and supply of military hardware and technology. In 2004, OFB floated a global tender for setting up a BMCS plant at Nalanda, Bihar, which IMI won. However, the tender was not finalized. In 2007, OFB issued a fresh global tender, which IMI again won. IMI submitted a bank guarantee and sought an advance of 20% of the contract value. In 2009, IMI signed a pre-contract Integrity Pact and a formal contract was executed between IMI and OFB. The contract stipulated that all time schedules, deliveries, supplies, and performance of services were to commence from the date the advance payment was transmitted to IMI. IMI claimed that it fulfilled the conditions for the release of the advance payment, which was made in March 2009. However, in June 2009, OFB issued an order to put contracts with foreign suppliers, including the contract with IMI, on hold due to intelligence inputs received by the Central Bureau of Investigation (CBI) regarding alleged corruption in the procurement process. IMI protested the hold order, and OFB responded by informing IMI that a FIR had been registered against IMI and other suppliers for alleged payment of illegal gratification. IMI challenged the hold order in the High Court of Delhi, which allowed the writ petitions filed by similarly situated suppliers and directed OFB to proceed further in accordance with the law and principles of natural justice. OFB issued a show cause notice to IMI in April 2010, to which IMI replied. The CBI filed a chargesheet in June 2010 against the then Director General of OFB and his associates, based on which OFB issued a second show cause notice to IMI in December 2010. IMI responded to the show cause notice and sought the underlying documents forming the basis of the allegations. OFB responded that the show cause notice was based on extracts from the chargesheet filed by the CBI. A committee was constituted by OFB to examine the matter and submit a report, which recommended action against IMI. OFB issued the impugned order in March 2012, terminating the contract and debarring IMI from further business dealings with OFB, the Department of Defence Production, and the Ministry of Defence for a period of ten years.
Finding of the Court:
The court held that there was no breach of the principles of natural justice in the impugned order. The court noted that IMI was provided with the extracts from the chargesheet filed by the CBI, which formed the basis of the show cause notices issued to IMI. The court also noted that IMI was given an opportunity to respond to the show cause notices and to present its case before the committee constituted by OFB. The court further held that the fact that the impugned order was passed by persons other than those who heard IMI's representatives did not violate the principle that one who hears must decide, as the committee was only a recommendatory body and the impugned order was passed by OFB after considering the committee's report and IMI's submissions.
Issues: 1. Whether the impugned order was passed without due compliance of the principles of natural justice? 2. Whether the petitioner was provided with the underlying material forming the basis of the order, including the FIR and chargesheet filed by the CBI? 3. Whether the impugned order was based on the recommendations of a committee constituted by OFB, which heard the petitioner's representatives but was only a recommendatory body? 4. Whether the impugned order was passed by persons other than those who heard the petitioner, in violation of the principle that one who hears must decide?
Ratio Decidendi: 1. The court held that there was no breach of the principles of natural justice in the impugned order, as IMI was provided with the extracts from the chargesheet filed by the CBI, which formed the basis of the show cause notices issued to IMI, and IMI was given an opportunity to respond to the show cause notices and to present its case before the committee constituted by OFB. 2. The court held that the fact that the impugned order was passed by persons other than those who heard IMI's representatives did not violate the principle that one who hears must decide, as the committee was only a recommendatory body and the impugned order was passed by OFB after considering the committee's report and IMI's submissions.
Final Decision: The court dismissed the writ petition, holding that there was no merit in the petitioner's contentions and that the impugned order was passed in accordance with the principles of natural justice.
Rajiv Shakdher, J.
1. The petitioner before me, i.e., Israeli Military Industries Ltd. (in short IMI) is a company, which is wholly owned by the Government of Israel and incorporated under the laws of Israel. IMI is aggrieved by an order dated 05.03.2012, issued by the Ordinance Factory Board (in short OFB), i.e., respondent no. 2. The impugned order impacts IMI in two ways. Firstly, it seeks to cancel a turnkey contract awarded to it, pursuant to a global tender floated, to set up a plant for manufacturing By-Modular Charge Systems (in short BMCS), alongwith associated civil works in Nalanda, in the State of Bihar (hereinafter referred to as BMC project). Secondly, it proceeded to debar IMI from further business dealings with OFB for a period of ten (10) years.
1.1 There were also certain consequential directions issued by the impugned order, which is that, the contract would be retendered, and loss, if any sustained on account of cancellation, would be recovered by it. This course was, however, indicated while reserving the right for further recoveries and actions, as per the contract obtaining between the parties.
2. The principal ground on which the impugned order is challenged is that, it was passed without due compliance of the principles of natural justice. There were several submissions made on behalf of IMI in support of this main submission, which were really off shoots of this main submission. I shall be dealing with each of them in the course of my judgment. The respondents, as is expected, have repelled these charges. Therefore, before I proceed further, it may be relevant to set out briefly the material facts obtaining in the case, which are necessary for determining the issues at hand.
3. IMI, which claims to be one of the leading players in providing military hardware and technology, entered into a Memorandum of Understanding (in short the MOU) with OFB, on 26.10.2003. The MOU generally details out the common objective of the two parties, which was to co-operate, in the manufacture and supply, to their customers worldwide, the products which the parties intended to produce jointly. It may be useful to notice that the Government of India and the Government of Israel as a prelude to the MOU had executed a Bilateral Investment Treaty (in short the Treaty) to further the trade between the two countries, on 29.01.1996.
4. It is in the background of the above that, on 29.03.2004, OFB floated a global tender inquiry for setting up a BMCS plant at Nalanda, in Bihar.
4.1 IMI filed its bid whereupon it was declared L-1. However, for reasons best known to the parties, the tender of March, 2004 did not achieve fruition.
4.2 After nearly a gap of three years, on 26.02.2007, OFB issued a fresh global tender inquiry. In terms of the tender Requests for Proposal (RFP) were sought from interested parties. Once again, IMI participated in the tender and submitted its RFP. IMI furnished a bank guarantee in the sum of Rs.3 crores towards earnest money. Crucially, IMI sought an advance of 20% of the contract value. It appears that apart from IMI an Italian company by the name of Simmel Difesa remained in the fray.
4.3 On 20.09.2007, IMI also signed a pre-contract Integrity Pact in terms of clause 33 of the tender, which was executed as per the format provided in Annexure XV of the tender.
4.4 On 28.01.2008, price bids were opened, whereupon the petitioner once again was declared L-1. IMI claims that, its bid at Rs.1090.83 crores was lower by about 72% as compared to the next lowest bid; which was put in by Simmel Difesa. It is claimed that, Simmel Difesa quoted a figure of Rs. 1885 crores.
4.5 IMI, further claims that, negotiations were held between its representatives and those of OFB, in the presence of its main partners, Bateman Litwin and L&T. Pursuant to these negotiations, IMI reportedly reduced its offer price by 3 million Euros.
4.6 Consequent to the aforesaid steps being taken, a Letter of Intent (LOI) wa
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