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TMI Blog2023 (3) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 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 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 LPA 327/2022 & 500/2022 Pg. 5 of 46 ensure that the writ petition, which is pending adjudication before the learned single judge, is not rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. of the Integrity Pact Undertaking given at the time when JBM Electric had applied under the PLI Scheme. 4.1. As per Clause 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 intragroup sales, the debarment/blacklisting of JBM Electric was unjustified. That said, the learned Single Judge, after quashing the impugned 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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. 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 inclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord 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. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales; 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. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (2014) 2 AIR Bom R 511 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orical 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 noncontrolling interests, foreign operations, different financial reporting periods, accounting policies or income taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y imposed on it on 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/sis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servance 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision 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-avis 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. 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 company which was in the business of pharmaceuticals had withheld the information that it had been blacklisted/deba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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