9911796707
TMI Blog2008 (3) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners, instead of attacking the respondents, are themselves under attack, for the writ petitioners are accused by the respondents to have suppressed the truth, made incorrect, false and misleading statements, in their writ petition in order to persuade the High Court to restrain, in exercise of its powers under article 226 of the Constitution of India, the State respondents from receiving pursuant to a tender process, a model of pacemaker, which was in public interest, selected consciously, by the State respondents for the common good of cardiac patients of the three medical colleges, in Assam, following a decision-making process, which was otherwise, completely fair, entirely transparent and wholly legal. 3. Before I describe as to what the respective cases of the parties to this writ petition are, some material facts, which are not in dispute, may be noted. With the object of providing to some, if not all, cardiac patients "permanent pacing system", commonly known as "pacemaker", within the financial year 2007-2008, for three medical colleges of Assam, the Director of Health Services, Government of Assam, published on May 3, 2007, a notice inviting tender (in short, "NIT"), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of opening of the tenders, the authority concerned merely informed the petitioner-company's said representative that the authorities were not in a position to open the tender papers on May 28, 2007. For their inability to open the tender papers, no reason was assigned; rather, the petitioner-company's said representative was told by the authorities concerned that the "probable date" for opening of the tenders would be intimated to the tenderers subsequently. Though, on May 28, 2007, as indicated hereinbefore, the authorities concerned had told the petitioner-company's representative that the date of opening of the tenders would be notified subsequently, no intimation whatsoever was received by the petitioner-company with regard to the out-come of the tender process. However, on subsequent inquiry made from the office of the Directorate of Health Services, Assam, the petitioner-company could come to learn that in the absence of the representatives of the other tenderers, but in the presence of the representative of respondent No. 4, the tender papers, in respect of the technical bids, were opened on June 2, 2007, and the price bids were opened on July 6, 2007. Though the compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy SR+2400 L having auto capture and rate response mode at a price of Rs. 49,000 each. This apart, the NIT stipulated submission of tenders by only manufacturers of pacemakers and none else, but respondent No. 4, though not manufacturer of pacemakers, has been selected for allotment of the contract. Though the NIT was floated inviting tenders in respect of pacemakers having VVI mode, the pacemakers, eventually, selected by the State respondents is of a different mode, namely, VVI (r). Thus, there is material deviation from the stipulated specifications in selecting the product. The product, which had been offered by the petitioner-company, was not considered at all by the Technical Committee and what the Technical Committee had examined was a model, which the petitioner-company had never offered. 6. Thus, when the writ petitioners came to this court, challenge to the selection of respondent No. 4, was based, broadly speaking, on the following five grounds: (i) The tender papers were not opened in presence of the representative of the petitioner-company. (ii) The selection of respondent No. 4, as the awardee of the contract, cannot be sustained inasmuch as respondent No. 4 is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court considered the question of continuance of the said interim directions in the light of the affidavits filed by the respondents concerned. Upon consideration of the respective cases of the parties concerned, the court, by its order, dated September 17, 2007, modified the interim order and permitted thereby placement of supply order with respondent No. 4 to the extent of 100 pacemakers. While so modifying the interim order, the court, in its order, dated September 17, 2007, observed, inter alia, as under: "The contract, as already noticed, is for supply of pacemakers. If the petitioners contentions are to be accepted in toto, the petitioner would be entitled to the grant of the contract in which eventuality he would have made some profits from the supply of the pacemakers. Such profits are capable of being computed in terms of money. Mr. Saikia, learned standing counsel, Health Department, has made a statement that even if the interim order passed by the court is suitably modified and supply of 100 numbers of pacemakers are permitted to be executed in terms of the grant made in favour of respondent No. 4, the needs of the three Medical Colleges for a period of about three mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner-company from the office of the Director of Health Services, Assam, that they came to learn that the tender papers for the technical bid were opened on June 2, 2007 and the tender papers for the price bid were opened on June 6, 2007, but these bids had been opened in the absence of the representatives of all the other tenderers except respondent No. 4. 12. In the counter-affidavit, which was filed, on September 7, 2007, by respondent No. 2, namely, Director of Health Services, Assam, this respondent, while reacting to the petitioner-company's above accusations, asserted that all the tenderers, including their representatives, were informed, vide notice, dated May 28, 2007, about the extension of the last date and time of receipt of the tenders up to May 29, 2007 due to a bandh call on May 28, 2007 and, in consequence of this notice, the petitioner-company's representative, Indranil Gupta, was accordingly present on the following day, i.e, on May 29, 2007, at the time of opening of the tender papers. With the help of their counter, respondent No. 2, thus, challenged the veracity of the very foundation of the petitioner-company's case that no reason had been assigned by the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequence of such a notice, when the tender papers were opened on May 29, 2007, the petitioner-company's representative, namely, Indranil Gupta, was very much present. 14. Confronted with such a bold denial of the petitioners' case by respondent No. 2, as mentioned hereinabove, the petitioner-company retraced their steps, modified their assertions and came up with a new story, which can be best depicted in their own words, for they, at paragraph 6 of their affidavit-in-reply, asserted as follows: "6. That, the statements made in paragraph 7 of the affidavit are not wholly correct and as such, the same are denied by the deponent. The tender in the instant case is a two bid system and as such, the tenderers were required to submit technical bid and price bid in two separate and different sealed envelopes. Thereafter, those two sealed envelopes were to be put inside a single sealed envelope subscribing 'Tender for supply of permanent pacing system for D.H.S. Assam (Tender No. HSPB/5/ Pacemaker/2007/480) due at 14 hrs on May 28, 2007 addressed to the Directorate of Health Services, Assam'. Thereafter, the said sealed single envelope containing the technical bid and price bid in two di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter, the members of the technical committee were requested to be present to examine the technical bids in the meeting to be held at 11 a.m., on June 9, 2007. Similarly, the bid evaluation committee evaluated the bids on July 7, 2007 which can only be done on receipt of the scrutiny reports of the technical bids made by the technical committee, which was done on June 9, 2007. Therefore, the tender papers (technical bid and price bids) could not have been opened on May 29, 2007 as contended by respondent No. 2 in his affidavit. In that view of the matter, the deponent reiterates and reaffirms that the tender papers including the technical bid and price bid, were not opened in presence of the petitioner-company or his representative." 15. Apart from the fact that respondent No. 4 fully supported, in their counter affidavit, dated September 17, 2007, the assertions made by respondent No. 2 to the effect that on May 29, 2007, six tenders were opened in the presence of the bidders/their representatives to ensure whether the technical and price bids were in separate envelopes, the earnest money and court-fees stood enclosed or not and whether other statutory documents were in order or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the earnest money deposit were checked and thereafter, the officials of the department had duly entered necessary remarks in the attendance register. Furthermore, the said officials also put their signatures on all the documents found in the technical bid envelopes on that day, i.e, May 29, 2007. The whole exercise was carried in front of the tenderers and/ or their authorised representatives including that of the writ petitioner-company and the said tenderers or their authorised representatives had duly signed the attendance register to mark their presence. It is pertinent to mention that in the 'technical and commercial bid' envelope of the writ petitioner which was opened on May 29, 2007 in presence of the representatives of the petitioner-company, the original literature/specifications of the product of Pacetronix along with original tender booklet duly filled in and signed, demand draft No .022475 dated April 25, 2007 for Rs. 33,36,000 as earnest money, quotation dated May 25, 2007 in duplicate, attested copy of valid manufacturing license, annual turnover statement for last three years with balance-sheet, sales tax clearance certificate, photocopy of board resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al bid envelope were checked and accordingly necessary remark was incorporated in the attendance register on May 29, 2007 which was duly signed by Sri Indranil Gupta on that very day. Thus it is crystal clear that the technical bid of pacetronix was opened in presence of Sri Indranil Gupta on May 29, 2007. In respect of other sequence of events in the tender process, the deponent begs to refer and rely to the statements made in the affidavit-in-opposition of the deponent herein. A copy of the covering letter dated May 25, 2007 enclosed in the 'technical and commercial bid' Envelope and the two envelopes of the petitioners which were opened on May 29, 2007 are annexed herewith and marked as annexure A, B and C respectively." 17. From the averments, made in paragraph 4 of the counter filed by respondent No. 2, what becomes evident is that according to respondent No. 2, all the tender papers had been opened, on May 29, 2007, in presence of the tenderers and/or their representatives and, in this process, even the petitioner-company's envelope, containing technical bid, was opened on May 29, 2007, itself in the presence of Indranil Gupta and, upon opening of the envelope of the techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the petitioners still stand by their case that on May 28, 2007, the petitioner-company's representative, Sri Indranil Gupta, had not been informed by the authority concerned as to why the tender papers were not being opened on May 28, 2007 and as to when the tender papers would actually be opened. According to Mr. Bhattacharyya, the tender papers were to be opened on May 28, 2007 at 3 p.m., and as the tender process consisted of two bids system, the tenderers were required to submit "technical bid" and "price bid" in two separate sealed envelopes and, then, these two envelopes were to be put inside a bigger envelope and sealed and, then, the said big envelope was to be put in the tender box, which was provided by the Directorate of Health Services in his office. No specific information, insists Mr. Bhattacharyya, was given, on May 28, 2007, to any of the tenderers as to when the tender papers would be opened, but a notice was found to be fixed on the notice board of the office of the Director of Health Services informing the tenderers that the last date and time of receipt of the tender papers stood extended up to May 29, 2007. However, even this notice, according to Mr. Bhat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning any reason therefor and merely told the tenderers that the "probable date" for opening of the tenders would be intimated to the tenderers subsequently. Mr. Saikia further points out that according to the writ petitioner's case, as they had, originally, presented before this court, the authorities had never informed the tenderers about the date of the opening of the tenders and it was, upon enquiry made by the petitioners from the office of the Director of Health Services, that they could learn that the tender papers, in respect of the technical bid, had been opened on June 2, 2007 and the tender papers, in respect of price bid, was opened, on July 6, 2007, in absence of the representatives of the tenderers except respondent No. 4. It can, thus, be seen, contends Mr. Saikia, that the petitioners deliberately made incorrect and false statements, in their writ petition, trying to falsely project as if they had remained ignorant, on May 28, 2007, about the fact that the tender papers would be opened on May 29, 2007 and as if they had remained ignorant that on May 29, 2007, tender papers had been opened. Mr. Saikia further submits that as against the case, so set up by the writ pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a twisted and manipulated case, has no right to seek any relief. In support of this submission, Mr. Goswami places reliance on the famous case of R v. Kensington ITC [1917] 1 KB 486. 24. In the light of the submissions noted hereinabove, let me, now, deter mine if the writ petition suffers from suppression of material facts and whether the writ petitioners have made incorrect, false and misleading statements, in their writ petition, in order to project a case, which was not true, and if so, whether the writ petition needs to be heard, on merit, at all. 25. While considering the question as to whether the petitioners had misled the court by falsely projecting a case of denial of opportunity to them to remain present at the time of the opening of the tender papers, it is extremely important to note that the specific case of the writ petitioners, as pleaded by them at paragraph 7 of their writ petition, was that though their authorised representative, Indranil Gupta, was present on the scheduled date and time of opening of the tender papers, i.e, on May 28, 2007 at 3 pm, in the office of the Director of Health Services, not only Indranil Gupta, but the representatives of the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rup bandh on May 28, 2007, the last date and time of receipt of the tender papers stood extended up to May 29, 2007. Even in their affidavit -in-reply, submitted on September 17, 2007, the writ petitioners continued with their misrepresentation of facts by claiming that the said notice was absolutely silent about the date and time of opening of the tenders, though, as already pointed out above, the said notice, dated May 28, 2007, clearly stated that except the change in the date and time of the receipt of the tenders, the other terms and conditions of the NIT would remain the same. That the writ petitioners' representative, Indranil Gupta, understood the notice clearly and knew, even on May 28, 2007, that the tender papers would be opened, on May 29, 2007 at 3 p.m., is evident from the fact that in their affidavit-in-reply, dated September 17, 2007, the writ petitioners conceded that on May 29, 2007, the tender box was opened in the presence of Indranil Gupta and representatives of other tenderers. While conceding this much, contrary, of course, to what they had projected earlier before this court, the writ petitioners' conscience could not compel them to concede to the truth comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 560 (rupees four lakhs eighty-two thousand five hundred and sixty) only. 6. Cannon Devices (P.) Ltd., Kolkata. No papers in the envelope. Hence rejected. Received the original unopened tender copy." 28. The extracts, placed above, clearly show that on May 29, 2007 itself, the tender papers were opened and having found the bids of some of the tenderers, namely, Advance Cardio Care, Guwahati, and Cannon Devices P. Ltd., Kolkata, not in tune with the requirements of the NIT, entries, in this regard, had been duly made in the said register. It is not the case of the writ petitioners that Indranil Gupta had to put his signature (s) on a blank sheet of paper or when Indranil Gupta had signed, nothing stood mentioned in the register, in question. This shows that Indranil Gupta did sign the register after the entries, which stand extracted above, had already been made in the said register. These entries leave no room for doubt that contrary to what the writ petitioners have been insisting till the hearing of the writ petition, the tender papers were, indeed, opened, on May 29, 2007, in the presence of Indranil Gupta and the representatives of other tenderers. In the face of such cogen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about, the date on which the tender-box were to be opened. No wonder, therefore, that the writ petitioners' assertions, in their writ petition, were to the effect that on May 28, 2007, the authorities concerned merely informed them that the tenders would not be opened, but, for not opening the tenders, the authorities assigned no reason whatsoever and that it was only at a much later stage, when they made enquiries from the office of respondent No. 2 that they came to know that the paper; relating to the technical bid, were opened on June 2, 2007 and the papers, relating to the price bid, were opened on June 6, 2007. Respondent No. 4, in tune with the case of respondent No. 2, has asserted that the reasons for postponement was announced on May 28, 2007 and that the tender papers were accordingly opened on May 29, 2007, in presence of the representatives of the tenderers. These assertions, on a dispassionate analysis of the facts pleaded by the parties concerned and in the face of the materials on record must be held to stand proved. Notwithstanding the fact that the writ petition was, thus, woven with conscious efforts to not only suppress the facts, but make inaccurate, misleadin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court under article 32 of the Constitution for enforcement of his fundamental rights on a petition containing misleading and inaccurate statement and the court must dismiss such a petition. In State of Haryana v. Karnal Distillery Co. Ltd., AIR 1977 SC 781, the apex court refused to grant relief on the ground that the applicant misled the court. The purpose of prerogative writ is to remedy a wrong and not promote one. It will not be granted in the aid of those, who do not come to the court with clean hands. 35. In the present case, there is not even an iota of doubt in the mind of this court that the writ petitioners have suppressed the truth, made misleading, incorrect and, at times, even false statements in their writ petition and affidavit- in - reply, dated September 17, 2007. It was on the basis of such averments that the writ petitioners have succeeded in stopping till now the State respondents from obtaining the pacemakers, which are meant, naturally, for a person, who cannot afford to pay and have to per force depend on the Government to provide the same to him. In a case of present nature, when a medical appliance, which can save a human life, was the subject-matter of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the record committed by the Technical Committee on the basis of a non-existing fact in respect of Permanent Pacing Lead." 38. Reacting to the averments made above, respondent No. 2 has, in para graph 8 of his affidavit-in-reply, replied, inter alia, as under: "8. That as regards the statements made in paragraph 10 of the affidavit in reply, the deponent begs to state that the petitioner has offered Pinnacle + 8819/8820 in the category of Permanent Pulse Generator (main instruments). The Technical Committee had duly evaluated Pinnacles + 8819/8820 model of the petitioner and found its sensitivity -0.5 to 4.0 MV; whereas required sensitivity was, at least, up to 8 MV and thus opined that it was far below the norms asked for. In the category of Permanent Pulse Lead, the petitioner has furnished a booklet, wherein different models of leads: 3851-VU, 3852-VU, 3851-AU, 241-VD, 242-VD, 243-VD, 3851-VV and 3852-VV are mentioned. But interestingly, the petitioner, in his technical bid, has not specifically Indicated which Permanent Pulse Lead he actually had offered in the tender. However, the Technical Committee found that amongst all the aforementioned models of leads, offered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e controversy is this: The petitioner-company's offered model, in respect of Permanent Pulse Generator, which is the main instrument, was Pinnacle 8819/8820. The technical committee found its sensitivity lower than what had been sought for. Thus, both these models could not satisfy the required specifications under the label basic component, namely, permanent pulse generator. Hence, rejection of the petitioner-company's model 8819/8820 by the technical committee cannot be interfered with. 41. Yet another basic component of the pacemaker, as sought for by the NIT, was permanent pacing lead and one of the required features of the lead was that it must have had steroid eluting tip or other technical improvisation. The third basic component, sought for by the NIT, was the appropriate size of the Pacing Lead Introducer (PLI). The State respondents claim that the petitioner-company did not clearly state, in its bidding papers/documents, as to which model of lead it had sought to offer. How ever, according to the State respondents, in the light of the petitioner-company's booklet, the only model in respect of permanent pacing lead, which was closer to the specifications, was 3852 VU inas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures mentioned under the heading "permanent pacing lead at clause 2(iv)" were not satisfied even by the petitioner-company's said model. In fact, the booklet, which the petitioner-company had furnished along with its tender papers, has been produced before the court and this booklet shows that in respect of Permanent Pacing Lead, (even if the offered model was 3851 VU and/or 3851 VB), neither the model 3851 VU nor the model 3851 VB has Steroid Eluting Tip and, in fact, it is only the model 3852 VU, which has Steroid Eluting Tip. These facts are not in dispute. In the face of these undisputed facts, the model 3851 VU or model 3851 VB could have, by no means, been considered as a product, which satisfies the specifications. Hence, even if it is assumed for a moment that model 3851 VU in respect of Permanent Pacing Lead had not been considered by the Technical Committee, no prejudice can be said to have been caused to the petitioner-company, particularly, because of the fact that if this court, now, sets aside the selection of the product of the respondent No. 4 and remands back the matter to the authorities concerned, the technical committee would not be able to clear the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould satisfy the specifications, the technical committee's finding that none of the products of the petitioner-company deserved to be recommended for selection cannot be said to be incorrect. In such circumstances, it is completely irrelevant as to what the price was at which the petitioner-company had offered to supply its pacemakers. 45. Before proceeding further, it is of immense importance to note that the petitioner-company has not contended that their pacemaker's model 8819/ 8820 meet the minimum criteria asked for by the NIT. This apart, the findings of the Technical Committee with regard to the petitioner-company's model 8819/8820 is that none of these two models satisfy the minimum criteria asked for by the NIT inasmuch as the pacemaker and lead are below the specifications in respect of sensitivity, polarity, lead and PLI size. 46. Let me, now, deal with another ground of challenge posed to the selection of the pacemaker, which respondent No. 4 had offered. Mr. Bhattacharjee contends that the terms and conditions of an NIT cannot be deviated from, particularly, when a given term or condition is mandatory in nature. In the present case, contends Mr. Bhattacharjee, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o determine if there has really been a deviation from the terms and conditions specified in the tender notice and if such a deviation is noticed, the court has the obligation to further determine if such deviation is in respect of a term or condition, which was mandatory in nature, could not have been relaxed and have not been relaxed, in public interest. To put it a little differently, though sanctity of a tender process does not permit any deviation from the terms and conditions embodied in the NIT, the court is still bound to examine and satisfy itself if the terms and conditions which have been deviated from were bound to be followed, could not have been departed from, have not been departed from in public interest and such deviation has caused miscarriage of justice. Lest the State and its instrumentalities go wayward and become unbridled, judicial precedents warrant the State and its instrumentalities to adhere to the norms secured and procedures laid down by the tender notice and not to depart therefrom arbitrarily. Normally, therefore, the tender of each party must be considered on the basis of the conditions specified in the NIT and no departure, unless permitted by the NI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Jude's Regency 2400L, is technically best qualified pacemaker quoted. The fact that technically, this was the best qualified pacemaker is not in dispute and it is this pacemaker, which has been selected, eventually, by the State respondents. It is the case of the State respondents that the Government wanted to provide best quality pacemaker within its affordable price and it is for this reason that St. Jude's Regency 2400L has been selected. It is also noteworthy that St. Jude's Regency 2400L has auto capture and rate response mode as its additional features. In such circumstances, when there is nothing to show on record that this selection was not made in public interest, the decision, taken by the State respondents, to obtain St. Jude's Regency 2400L cannot be said to be illegal, mala fide and/or on extraneous considerations. This apart, the technical committee's findings also reveal that respondent No. 4's product, namely, St Jude's Varity ADXL 5056, satisfies all the minimum criteria asked for and that it has autocapture facility, which has additional effect in considerably prolonging the battery life. The NIT, in no uncertain words, had clarified that wider range of program ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent selects a pacemaker having auto capture and rate response, it cannot be said to have deviated from the terms and conditions of the NIT. 60. What clearly follows from the above discussion is that none of the models, offered by the petitioner-company, having met the minimum required criteria set by the NIT, the rejection of its product cannot be said to be illegal or incorrect. As against this, when the product offered by respondent No. 4, satisfied all the minimum criteria asked for and had additional features, the selection of the pacemaker made by the Government cannot be said to illegal requiring interference by this court in exercise of its extraordinary jurisdiction under article 226 of the Constitution of India. 61. Let me, now, turn to the contention of the writ petitioners that respondent No. 4 is not a manufacturer of pacemakers and was, therefore, not eligible, in terms of clause 2 of the N.I.T., to participate in the tender process. In order to appreciate this grievance of the writ petitioners, one has to, first, understand as to what, on this aspect of the case of the writ petitioners, respondent No. 4, contends. The case of respondent No. 4, as pleaded, in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to why the petitioner at the time of opening the technical bid did not object to the fact that all other tenderers are not manufacturers the same is to be accepted to be correct. Hence, such belated pleas of the petitioner is not to be accepted by this Court to stall a tender process undertaken by the Government of Assam in the interest of below poverty line heart patient and more so when the entire process have been open, transparent and fair. Further, St. Jude Inc., USA is an internationally reputed manufacturer of the products in question. In the context of a global economy, such a company has to operate in different countries consistent with the laws of the said countries. The deponent company is a subsidiary of the aforesaid Netherlands company which is a wholly owned subsidiary of the American company and as such the deponent company is also a wholly owned subsidiary of the aforesaid American company. In substance, the said parent company operates through the deponent company in India for which all the requisite legal requirements have been already complied with. There is, thus, global unity in manufacturing, distribution and operations amongst the aforesaid companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , respondent No. 4. 63. Without disputing the correctness of the averments made by respondent No. 4 that it is a wholly owned subsidiary of St. Jude Medical Holdings, A.B., Netherlands, which, in turn, is the wholly owned subsidiary of the parent American company, namely, St. Jude's Medical Inc., USA, which manufactures pacemakers, in question, the writ petitioners, at paragraph 22 of their affidavit-in-reply, dated November 8, 2007, merely contend that respondent No. 4 is not a manufacturer and as the tenders, according to the writ petitioners, had been invited from only the manufacturer of pacemakers, respondent No. 4 was not entitled to participate in the tender process. 64. Mr. Bhattacharjee submits that respondent No. 4, even as a subsidiary of the parent American company, represents an independent legal entity and merely because of the fact that the holding company is "manufacturer" of pacemaker, respondent No. 4 cannot be regarded as a manufacturer or the pacemaker, for, there is nothing on record to show that respondent No. 4 manufactures of pacemakers in India. Support for his submission is sought to be derived by Mr. Bhattacharjee from the cases of Turner Morrison and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany having its office at Kolkata. Furthermore, respondent No. 4 has produced a certificate of incorporation as a company under the provisions of the Companies Act, 1956. Thus, the fact that respondent No. 4 is a company registered under the Companies Act, 1956, in India, is, in the light of the averments noted above, an admitted fact. It is also an admitted fact that respondent No. 4 is a wholly owned subsidiary of the Netherlands company and the Netherlands company is, in turn, a Wholly owned subsidiary of the parent American company. 67. The question, therefore, is this : Can, in law, a subsidiary of a subsidiary of a holding company be treated as the subsidiary of the holding company even if the holding company is not registered in India, but functions through its Indian subsidiary ? This question is fully answered by section 4. For the sake of clarity, section 4 of the Companies Act, 1956, with its illustration, is reproduced hereinbelow: "4. Meaning of 'holding company' and 'subsidiary'.-(1) For the purpose of this Act, a company shall, subject to the provisions of subsection (3), be deemed to be a subsidiary of another if, but only if, that other controls the compositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn was that a company is an entity, which is separate and distinct from its shareholders. The principle of law, so propounded, in Salomon's case, by the House of Lords, held the field for a long time. Ordinarily, even today, a company is a legal entity, different from its shareholders, and, consequently, a subsidiary of a holding company is a legal entity distinct and different from the holding company. To this extent, therefore, Mr. Bhattacharjee is not incorrect in referring to Turner Morrison and Co. Ltd. v. Hungerford Investment Trust Ltd. [1969] AIR 1969 Cal. 238. This, principle has, however, not remained invariable or a principle of universal application. With passage of time, when a company, taking advantage of its independent legal entity from that of its holding company, was found indulging in activities aimed at evading legal obligations, pecuniary or otherwise, the courts discarded the concept of separate legal entity of a company, whenever it was found that the company stood, constituted, formed or used, for the purpose of facilitating evasion of legal obligations. (See Pennington's Company Law, 4th edition-page 50-51). 72. Thus, there have been inroads into the doctr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ton's Company Law, 5th edition at page 49 has recognised that this principle has been relaxed in subsequent cases. He states that the principle of company's separate legal entity has on the whole been fully applied by the courts since Salomon v. A. Salomon and Co. Ltd. [1897] AC 22 (HL). Corporate veil has been lifted where the principal question before the court was one of company law, and in some situations where the corporate personality of the company involved was really only of secondary importance and the application of the old principle has worked hardship and injustice. In England, there have been only a few cases where the court had disregarded the company's corporate entity and paid attention to where the real control and beneficial ownership of the company's undertaking lay. When it had done this, the court had relied either on a principle of public policy, or on the principle that devices used to perpetrate frauds or evade obligations will be treated as nullities, or on a presumption of agency or trusteeship, which at first sight Salomon v. A. Salomon &. Co. Ltd. [1897] AC 22 seems to prohibit. Again at page 36 of the same book, the learned author notes a few cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance. The three companies should, for present purposes, be treated as one, and the parent company, DHN, should be treated as that one. So that DHN are entitled to claim compensation accordingly. It was not necessary for them to go through a conveyancing device to get it. I realise that the President of the Lands Tribunal, in view of previous cases, felt it necessary to decide as he did. But now that the matter has been fully discussed in this court, we must decide differently from him. These companies as a group are entitled to compensation not only for the value of the land, but also compensation for disturbance. I would allow the appeal accordingly." (emphasis is supplied) 76. The observations, made by Lord Denning in DHN Food Distributors Ltd. v. London Borough of Tower Hamlets [1976] 3 All ER 462 (CA), clearly show that when a parent company owns all the shares of the subsidiaries so much so that it can control every movement of the subsidiaries, these subsidiaries are bound, hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacemaker, which the subsidiary offers to supply. In any case, in the facts of the present case, it is clear that respondent No. 4 has to be regarded as manufacturer of the pacemakers, which its holding company manufactures. 79. Moreover, in DHN Food Distributors Ltd. [1976] 3 All ER 462 (CA), Justice Goff, while deciding to pierce the corporate veil and looking into the realities of the situation, proceeded with great caution and made it clear that it was, in the context of the facts of the DHN Food Distributors Ltd. [1976] 3 All ER 462 (CA), that such piercing of veil is necessary and appropriate. The observations of Lord Goff have been considered by the Supreme Court in State of Uttar Pradesh v. Renusagar Power Co. [1991] 70 Comp. Cas. 127. The relevant observations of Lord Goff are reproduced hereinbelow (page 153 of 70 Comp Cas): "Secondly, on the footing that that is not in itself sufficient, still, in my judgment, this is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil. I wish to safeguard myself by saying that so far as this ground is concerned, I am relying on the facts of this particular case. I would not at thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the late Lord President Cooper's words on the first hearing of this case. He said [1954] SC 381, 391: " In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view".' My third citation is from the judgment of Danckwerts, L. J. in Merchandise Transport Ltd. v. British Transport Commission [1961] 3 All ER 495, 518 (CA), where he said that the cases-(All ER page 518) 'show that where the character of a company, or the nature of the persons who control it, is a relevant feature the court will go behind the mere status of the company as a legal entity, and will consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doing anything without human assistance.' The third ground, which I place last because it is longest, but perhaps ought to come first, is that in my judgment, in truth, DHN were the equitable owners of the property. In order to resolve this matter, it will be necessary for me to refer in some detail to the facts." 80. In State of Uttar Pradesh v. Renusagar Power Co. [1991] 70 Comp. Cas. 127, the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the internal management of their subsidiary companies, and, in the unlikely event of there being any difficulty, it was only necessary to go through formal procedure in order to make the decision of the appellant company's board fully effective. 60. (Page 157 of 70 Comp Cas) In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. The truth is that, whenever a subsidiary is formed as in this case with an independent minority of shareholders, the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary. At the opposite pole to this standard may be put the conduct of a parent company which says 'our subsidiary company has served its purpose, which is our purpose. Therefore let it die' and, having thus pronounced sentence, is able to enforce it and does enforce it not only by attack from without but also by support from within. If this section is inept to cover such a case, it will be a dead letter indeed. I have expressed mys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of take over of the power station by the State or the Electricity Board. As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco, Renusagar is wholly owned subsidiary of Hindalco and is completely controlled by Hindalco. Even the day-to-day affairs of Renusagar are controlled by Hindalco. Renusagar has at no point of time indicated any independent volition. Whenever felt necessary, the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd fourth generating sets. It is appropriate to refer that having regard to the conduct of the State, in the power cuts matter and also the present proceedings the State should not be permitted to treat consumption of Renusagar' s energy by Hindalco as anything other than (sic or) different from consumption of energy by Hindalco from its own source of generation. We are, therefore, of the opinion that in the facts of this case the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation." (emphasis supplied) 85. From the observations made in paragraphs 66 to 70 of State of Uttar Pradesh v. Renusagar Power Co. [1991] 70 Comp Cas 127 , it becomes clear that in a given case, it is permissible for the court to " lift the corporate veil" and look into the realities of the situation to determine if a subsidiary is so much bound by the decision of its parent company that notwithstanding its independent juristic existence, it, as subsidiary, is merely a reflection of the actions or omissions of its parent company. 86. Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts own board of directors, that in law the board of the appellant company could not assign any duties to anyone in relation to the management of the subsidiary companies, and that, therefore, the agreement cannot be construed as entitling them to assign any such duties to the respondent. The argument was rejected by Lord Reid with the observation : ' This is too technical an argument' . The learned Law Lord went on to hold : ' This is an agreement in re mercatoria, and it must be construed in the light of the facts and realities of the situation' . . . 33. This court in Juggilal Kamlapat v. CIT [1969] 73 ITR 702, 710 ; [1969] 1 SCR 988, 995 ; AIR 1969 SC 932, has laid down that ' in certain exceptional cases the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade' . 34. In State of Uttar Pradesh v. Renusagar Power Co. [1988] 4 SCC 59 ; [1991] 70 Comp Cas 127 this court lifted the veil to hold that Hindalco, the holding company, and Renusagar Power Co., its subsidiary, should be treated as one concern and the power plant of Renusagar must be treated as the own source of generation of Hindalco and Hindalco would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was said : 'For the purpose of article 12 one must necessarily see through the corporate veil to ascertain whether behind that veil is the face of an instrumentality or agency of the State.' So also in State of U.P. v. Renusagar Power Co. [1991] 70 Comp Cas 127 ; [1988] 4 SCC 59 ; [1988] Suppl. (1) SCR 627, it has been observed : 'The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence'." 89. In the light of the observations made in New Horizons Ltd. v. Union of India [1997] 89 Comp Cas 849 (SC), it is clear that when a subsidiary is an alter ego of its principal or holding company, because of the fact that the activities of the subsidiary are controlled by the holding company, the court may regard, in public interest or as a matter of public policy, the two separate legal entities as one either for the purpose of imposing legal obligations on them or for the purpose of giving them legally due benefit. In the present case, when respondent No. 4 is, admittedly, a wholly owned subsidiary of its holding company, namely, the parent American company and all that the NIT needs is a lifetime warranty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rience in its own name, would the experience of those, who had been carrying on the business of the type, which the newly born firm is required to do, not be counted by a prudent businessman for determining the technical experience of the newly born firm to do the business ? It is not uncommon that a company, on account of merger or amalgamation, undergoes a re-organisation and a tender may be submitted in the name of such a re-organised company. Shall the experience of the company, which has merged into ref organised company, not be taken into consideration, because the tender has not been submitted in the name of the company, which has merged, but has been submitted in the name of a re-organised company, which has no experience, in its own name ? Similarly, there may be a split in a company and the persons, who had been looking after a particular field of the business of the company, may form a new company after leaving the earlier company. The new company, though have persons with experience in the field, may not have experience in its own name ; while the original company would have experience in its own name, but it would lack persons with experience, who had done work in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeded as follows : Admittedly there is no general principle that all companies in a group of companies are to be regarded as one ; on the contrary, the fundamental principle is unquestionable that ' each company in a group of companies . . . . is a separate legal entity possessed of separate rights and liabilities' . Nevertheless, it was argued, the court will, in appropriate circumstances, ignore the distinction between them, treating them as one. For this proposition a number of authorities were cited. The first of these was The Roberta [1937] 58 L & LR 159, in which bills of lading had been signed on behalf of a subsidiary company but a concession was made at the trial that the parent company was responsible for the bills. The judge described the concession as properly made since the subsidiary was a separate entity from the parent (which owned all its shares and supplied two out of three directors) ' in name only and probably for the purposes of taxation' . The second was Harold Holdsworth and Co. (Wakefield) Ltd. v. Caddies [1955] 1 All ER 725/[1955] 25 Comp Cas 250 (HL) in which it had been argued that Caddies, who had been appointed managing director of Holdsworth, the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as that one.' This, and the way in which it was put by Goff LJ, namely that 'This is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil', show, surely, that the court did not regard itself as construing a document or statute but was relying on what, in the judgment in Cape, is dealt with under its next head, 'the corporate veil' point. And, surely, it was on that assumption that in the later case of Wolfson v. Strathclyde Regional Council [1978] SLT 159 (HL), Lord Keith of Kirkel said, in reference to DHN case, 'I have some doubts whether the Court of Appeal properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere facade concealing the true facts.' In none of the cases considered under the present heading was the company concerned a ' mere facade concealing the true facts' , if it were only when that is so that the court, in construing a document or statute, could have regard to the economic realities there would be very few such cases. It is therefore somewhat puzzling that the Court of Appeal in Cape, said : 'the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; [1895-99] All ER Rep 33. In his view that doctrine existed basically in order to preserve the principle of limited liability although it had been applied, ' with more or less happy results in other spheres' . But ' to export it blindly into branches of the law where it had little relevance could serve only to divorce law from reality' . If a company, established outside the European Community, if would be amenable to the jurisdiction of the E. C. Commission and Court ; it should make no difference if it did so through a subsidiary company whether wholly owned or not. He therefore concluded that : (i)there is a presumption that a subsidiary will act in accordance with the wishes of its parents because according to common experience ' they generally do so act ; (ii) unless the presumption is rebutted, it is proper for the parent and the subsidiary to be treated as a single undertaking for the purposes of articles 85 and 86 . . .' After reviewing these authorities the court in Cape expressed some sympathy with the plaintiffs' submissions and agreed that : 'To the layman at least the distinction between the case where a company trades itself in a foreign country and the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticipate inasmuch as the pacemaker, which they claim to have offered, did not meet the specifications contained in the NIT. No deviation, going to the root of the selection process, could be shown to have taken place in the act of selecting the pacemaker, in question. The writ petitioners have also failed to show that in the context of the facts and circumstances of the present case, respondent No. 4 was not manufacturer of the pacemaker, which has been selected. Even if one were to assume, for a moment, that respondent No. 4 is not a manufacturer of the pacemaker aforementioned, the writ petitioners failed to show that in the light of the terms and conditions, specified in the NIT, respondent No. 4 was not eligible to bid in the tender process as a subsidiary of its holding company. 96. For the reasons aforesaid, I do not find any merit in this writ petition. This writ petition, therefore, fails and shall stand dismissed. Taking into account the matter in its entirety and in the interest of justice, the petitioners are directed to pay a cost of Rs. 10,000. 97. With the above observations and directions, this writ petition shall stand disposed of. 98. Return back the records. X X X X Extracts X X X X X X X X Extracts X X X X
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