TMI Blog1995 (2) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... y asking a reconsideration of its proposals. Before parting with this matter, we must say that the MoU entered into with MGB is subject to the final approval of the Government of India, as expressly provided in the directive dated June 20, 1994. We are sure that the Government would examine all the terms of the MoU carefully before according its approval. It is obvious that it is always open to the Government to seek such modification of the terms of the MoU as it thinks appropriate and as are feasible. But if it approves the MoU in the present form or in the modified firm as the case may be, it is but in the interest of all concerned that the project is given a concrete shape without any further loss of time. - CIVIL APPEAL NOS. 1251, 1252 AND 1253 OF 1995 - - - Dated:- 2-2-1995 - B.P. JEEVAN REDDY, AND SUHAS CHANDRA SEN, JJ. K.K. Venugopal, V. bhakru, Ms. Vijaylakshmi Menon, Ms. Anuradha Dutt, Ms. Rupali Chopra, Bharat Sangal, F.S. Nariman, Subhas Sharma, Ashok Mathur and Kirat Rawal for the Applicant. M. Chandrasekharan, P.P. Malhotra, Ms. Niranjana Singh, Mrs. Anil Kariyar, K. Parasran, P.K. Mullick, J.K. Das, Harish N. Salve, Sanjeev Puri, Ms. Meenakshi G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at research and development level with strains capable of yielding above 80,000 units/ml. The production capability of most of the companies around the world is 60,000 units/ml. Only GB seems to be ahead. The said publication also states that most of the important information relating to penicillin technology is not published since the companies keep it a closely guarded secret As a result of the negotiations between HAL and Max-GB (a company formed by GB and Max India coming together), a memorandum of understanding (MoU) was signed between HAL and MGB on June 20, 1994. The appellants in these three appeals, viz., Torrent Gujarat Bio-tec Limited, SPIG and PBG, had also offered to collaborate with HAL for the purpose of improving the quality and yield of penicillin-G and to achieve the full installed capacity. Each of them had also offered to bring foreign technology through their foreign collaborators. Their offers were not accepted by the HAL which entered into a MoU with MGB on June 20, 1994, as aforesaid. Soon thereafter, these three appellants filed writ petitions in the Delhi High Court questioning the validity of the said MoU. Their case was that though they offered to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 ; [1993] 1 Comp LJ 221, as well as the decision of the Allahabad High Court in Churk Cement Mazdoor Sangh v. Stat e of Uttar Pradesh, AIR 1992 All 88. The High Court, however, has repelled all the said contentions and dismissed the writ petitions. The case of the respondents, on the other hand, is that this was not a case where the Government could have followed the practice of inviting tenders; Such a procedure was just not possible in the circumstances. This was not a case of awarding a contract or a simple case of granting lease. It was a case where HAL was trying to import the best technology in the world to achieve its installed production and to improve its quality and yield while at the same time reducing the cost of production so as to compete in the world market. With the liberalisation policy, there was an apprehension of import of penicillin-G being placed on the OGL (open general licence) in which case the HAL would have been driven out of the market because the cost of penicillin-G produced by it is double the price of imported penicillin-G. Hence the urgency. No foreign company was prepared to part with technology except by way of JVC. Each of the appellants h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with HAL in providing technical know-how subject to their inspection of HAL facilities and satisfactory terms being negotiated between them. So far as SPIC is concerned, it is installing its own plant and the technology being adopted by it has been proved only at pilot plant level and not at commercial plant level ; HAL did not wish to experiment with this new technology. So far as Torrent is concerned, its tie-up is also with Biotica of Slovakia, whose technology was found to be inferior than GB. It is stated further that notwithstanding such rejection, their offers were re-evaluated by HAL at the instance of the Government of India. Even on such re-evaluation, it was found that the collaboration with GB is more in the interest of HAL than collaboration with any of the appellants or their foreign collaborators. The allegations of bias and mala fides attributed to Sri Basu are denied specifically. Before we deal with the contentions urged by the appellants, it would be appropriate to examine the relevant facts and to note how the offers of the appellants and the offer of MGB were dealt with and processed by HAL. In August, 1993, the managing director of the HAL, Sri A.K. Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on one million DM, and hence the agreement could not be finalised. The board noted the statement. The matter came up before the board again on October 26, 1993. At this meeting, the managing director emphasised the need for upgrading the penicillin technology and reiterated his opinion that the technology of GB is the best in the world and that HAL should not forgo the opportunity of obtaining its technology. He indicated the high profits which HAL would earn through such collaboration. The managing director also informed the board about the discussions, he had with the PBG and expressed his opinion that right now the said group had no technology but that they would be able to arrange for the technology and would be getting in touch with HAL by November 27, 1993. The managing director further submitted that the offers of MGB and others would be available by the last week of November and that it is better that all these offers are evaluated by a sub-committee of the board. Accordingly, the board constituted a sub-committee consisting of S/Sri P.C. Rawal, N. Gopalan and Dr. P.K. Ghosh, directors, to evaluate the proposals received. At the meeting of the board held on December 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives of these two companies were heard by the board which rejected both the proposals again. The board then heard the representatives of MGB about their proposals. The representative of MGB did not agree to having 49 per c ent, interest in the proposed joint venture company (JVC) and insiste d upon equal sharing, i.e., 50 per cent. each. By the date of the next Board meeting oh April 28, 1994, the report of the sub-committee (which was appointed in the board meeting dated October 26, 1993, to evaluate the proposals for upgradation of penicillin technology) was received. It would be appropriate to briefly refer to the salient points in the report of the sub-committee at this stage. Pursuant to the directions of the Government, the sub-committee says, it looked into the following four issues also in addition to the evaluation of the proposals of collaboration received from various parties. The four issues referred to by the Government are : "( i ) The need for obtaining technology for upgradation of the production capacities in the penicillin plant and whether the technology can be obtained directly rather than going through the process of a joint venture ; ( ii ) Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to the level of IDPL, in the year 1995-96 when the production of HAL is expected to be 1100 MMU it should be possible for HAL to attain improvements and cost reduction to achieve profit of Rs. 288 per Bu as examined above which should give the profit of Rs. 31.68 crores (at current sale price for Pen.G first crystal at a production level of 1100 MMU for HAL.)" The sub-committee then noted the fact that the offers of SPIC and PBG have been rejected by the board which rejection was reiterated after rehearing them pursuant to Government directions. The sub-committee also noted that since Ranbaxy has failed to submit its proposal within the time specified the only proposal left was that of MGB. After evaluating the proposal of GB and its offer of Rs. 13 crores rental per annum and after considering the potential of HAL and its performance, the sub-committee expressed its opinion in the following words : "62. The sub-committee is of the opinion that the proposal of leasing out penicillin production facilities of HAL to JVC in which both HAL and Max-GB would have fifty per cent, equity each should be decided by the board keeping in view the possibility of increasing production a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental should be calculated at this assessed profitability of Rs. 31.68 crores and this should be adjusted to account for depreciation, proportionate interest on lease rental paid by HAL on leased assets in the penicillin plant and adjustment for the income tax liability. (Reference para 44 of the subcommittee's report.) The board authorised the MD to compute the lease rental as above and communicate to Max-GB the lease rentals that would be acceptable to HAL from the JVC and in due course inform the board of their acceptance." The managing director of HAL, Sri Basu who did not agree with the board resolution aforesaid, addressed a letter dated May 3, 1994, to the Secretary, Ministry of Chemicals, and Fertilisers. This is a very detailed letter enclosing several work sheets. After setting out his reasons in detail as to why the board resolution stipulating a minimum lease amount of Rs. 31.68 crores is not appropriate and after setting out the several advantages that would flow from the proposed JVC between HAL and Max-GB the letter concluded : "2.0 To conclude, the sub-committee's report has not taken into consideration the following : ( a )HAL's present technological lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isers to issue the following directive to Hindustan Antibiotics Limited in exercise of the powers under article 117 of the memorandum and articles of association of Hindustan Antibiotics Limited ; ( i ) Hindustan Antibiotics Limited may enter into a memorandum of understanding (MoU) at the earliest with Max-GB for establishing the proposed joint venture, subject to final approval of the Central Government. ( ii ) The lease rent to be paid to the Hindustan Antibiotics Limited by the joint venture company be negotiated immediately with Max-GB by a committee comprising the managing director, Hindustan Antibiotics Limited, the Joint Secretary and Financial Adviser, Ministry of Chemicals and Fertilisers, a part-time official, director, on the board of Hindustan Antibiotics Limited and Shri Vinod Vaish, Joint Secretary to the Government of India in the Department of Chemicals and Petro-Chemicals and the agreed amount be incorporated in the memorandum of understanding. Yours faithfully, (Sd.) C. Lal, Deputy Secretary to the Government of India." Pursuant to the aforesaid letter, a committee as contemplated in para 2( ii ) thereof was constituted. The Committee held ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise the MoU with MGB. While permitting him to go and have discussion there, the Government of India instructed him not to enter into a MoU or to make any commitment since the Government was of the opinion that all the alternative proposals should be examined and a decision taken after examining the merits of each proposal. In the meeting of the board of directors of HAL held on September 20, 1995. Sri Basu explained the advantages that will accrue from a tie-up with MGB. According to him. it was a lifetime opportunity for HAL which it should not forgo. This was his theme throughout in all the board meetings. (Indeed, in one of the meetings, the board of directors found fault with Sri Basu for entering into negotiations with GB/MGB without its approval. It appears obvious that Sri Basu had taken the permission of only the Government of India for entering into negotiations with GB/MGB and informed the board only after his visit to Holland.) Finally, when the board of directors decided on April 28, 1994, that the lease amount payable by the proposed JVC (to be formed by HAL and MGB with 50 per cent, shareholding each) should not be less than Rs. 31.G8 crores per annum and instructed h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture at the relevant time, as stated hereinbefore) were offering technology, either of Cipan or of Biotica of Slovakia and the board of directors of HAL was of the opinion that both of them were not acceptable Cipan for the reason that its technology was not vet proved at the commercial production level and Biotica of Slovakia on the ground that its technology was no superior to the technology presently employed by HAL. Among the seven world leaders mentioned hereinbefore, both Cipan and Biotica of Slovakia are not to be found. Another Indian company. Ranbaxy (not a writ petitioner or appellant before us) offered to obtain the technology of Hoescht (one of the seven world leaders) but it did not pursue its offer and failed to submit its proposals. This left only MGB in the field, as stated by the sub-committee. In other words, there was, unfortunately not much of a choice. In this connection, it must be emphasised that rejection of. Cipan and Biotica of Slovakia technology was not by Sri Basu, but by the board of directors-and that too not once but twice. There is yet another fact. Most of these companies keep their processes and technology a guarded secret. The better the tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g inspection of the HAL plant cannot be said to be motivated or arbitrary. We do not also think it necessary to refer to the correspondence that passed between SPIC and Sri A.K. Basu ‑‑ to which our attention has been drawn by Sri Raval for the reason that rejection of proposals of SPIC was not by Sri Basu but by the board of directors. The board proceedings referred to hereinbefore do establish that the board was acting in its own independent judgment in these matters and was not being led away by the opinions of Sri Basu. So far as PBG is concerned, it appears that it did not disclose the name of its foreign partner in the first instance ; it did so only later. Moreover, the letter of Biotica of Slovakia, (PBG's foreign partner) was found to be vague. Above all, the board of directors of HAL were satisfied that the technology of Biotica was no superior to the one being employed by HAL. Biotica of Slovakia is also not one of the world's seven leading manufacturers of penicillin-G and, therefore, the board thought that there was no point in pursuing the proposals of PBG. It cannot be said that it was not a fair decision nor can it be insisted that before rejecting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recommendation of the sub-committee that there is a tremendous scope for improving and achieving a higher level of efficiency and cost reduction in the operations of HAL itself with the existing technology and without obtaining any foreign technology and that HAL should first try that course. On the other hand, the board decided in its meeting held on April 28, 1994, that HAL should go in for technological collaboration with MGB in the form of a JVC. Yet another fact is that negotiations with MGB were held on June 20, 1994, not by Sri A. K. Basu alone but a committee of three members of whom one appears to have been a member of the sub-committee as well. We must reiterate that this was not a simple case of granting of lease of a Government company, in which case the court would have been justified in insisting upon the authorities following a fair method consistent with article 14, i.e., by calling for tenders. We agree that while selling public property or granting its lease, the normal method is auction or calling for tenders so that all intending purchasers/lessees should have an equal opportunity of submitting their bids/tenders. Even there, there may be exceptional situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India. The letter says that it was being issued with the approval of the Minister for Chemicals and Fertilizers. There is indeed no reference to the President at all: The question, however, is whether the President in article 117 of the articles of association of HAL means and refers only to the President of India and whether it is a power to be exercised by the President personally?. We do not think that it would be reasonable to construe article 117 as suggested by the appellants. The President of India like the Queen of England, is constitutional head.[See Rat Sahib Ram Jawaya Kapur v. State, of Punjab [1955] 2 SCR 225 and Shamsher Singh v. State of Punjab [1975] 1 SCR 814 ; AIR 1974 SG 2192] HAL is a Government company. It was really an agency, an instrumentality of the Government of India though given a corporate shape. Article 117 is one form of control the Government has over these corporate bodies. In the circumstances, it would be reasonable to understand the expression "President" in article 117 as referring to the Government of India. To say that this power should be exercised by the President himself is neither practicable nor consistent with the dignity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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