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2023 (3) TMI 383 - HC - Indian LawsDebarment/Blacklisting form participation in Production Linked Incentive Scheme (PLI Scheme) - grievance is that JBM Electric (and by association, all companies which were part of the JBM Group, which included JBM Ecolife) had been debarred from participation in all future tenders and the interconnected PLI Scheme up until 31.03.2027 - main thrust of its appeal was that it had been knocked out of the race for being awarded the subject contract, although it had tendered the lowest bid, albeit, only on the ground that its sister concern i.e., JBM Electric had been debarred/blacklisted - violation of principles of natural justice. Whether debarment/blacklisting of JBM Electric by MHI in the given circumstances was justified? - if the Court were to hold that MHI was not justified in debarring/blacklisting JBM Electric, what impact it would have on the fate of JBM Ecolife, both concerning the subject tender as well as tenders that MHI will float in the future? HELD THAT - 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 - UOI has asserted that there is only one way of understanding the purport, scope and ambit of what constitutes GGR. This argument is founded on the approach recommended by ICAI while preparing combined financial statements. It is no one s case, least of all UOI s, that JBM Electric was called upon to draw combined financial statements of all entities which formed part of the group. Instead, what has emerged is that JBM Electric was required to, inter alia, provide the revenue earned by each of the companies that formed part of the group which in turn was derived from manufacturing automotive and auto components. The summation of the revenues earned by each entity in the group was required to be given as GGR. A perusal of the clauses of the Guidance Note would show that where consolidated financial statements are not available and financial information LPA 327/2022 500/2022 Pg. 27 of 46 is required in certain situations, such as the takeover of entities, demergers, spin-offs or IPOs concerning entities which may or may not form part of the group such information, if sought, can be presented as a combined financial statement or carve-out financial statements. JBM Electric, as advised, it appears, verily believed that intra-group sales could be included in arriving at GGR. JBM Electric s stand is that what they have included in its intra-group sales transaction is only the revenue component and not the trading/input sales. It has also been argued that each of such constituents is independently carrying out its manufacturing activity and the product manufactured by one group company which is bought by another constituent of the group is acquired as raw material, which once worked upon, morphs into a new product before it is sold to an unconnected third party/customer. The purchasing constituent company, thus, makes a value addition before offloading the product to an unconnected third party/customer. Therefore, the contention advanced on behalf of JBM Electric is that it had rightly included intra-group sales while calculating the GGR - from the point of view of JBM Electric, it would be a case of misconception. If that is the position, it is opined that MHI could not have straightaway debarred/blacklisted JBM Electric without issuing a proper show-cause notice and calling upon it to explain its position. Blacklisting/debarment is a grave civil consequence for a business entity. It leads to a loss of reputation, goodwill and trust in business circles; which is why, even when the period of debarment/blacklisting is over, the aggrieved party continues to litigate only to defend its reputation and goodwill - we are not persuaded to accept the submission advanced on behalf of UOI that the learned Single Judge had issued a futile writ, as on remand the result would be no different. This submission of UOI is premised on the argument that there is no dispute concerning the fact that JBM Electric had factored in intra-group sales while calculating the GGR. The MHI, however, by virtue of its decision to debar/blacklist JBM Electric, has thrown to the wind every known principle of natural justice. The competent authority needed to bear in mind, if nothing else, that JBM Electric, which, according to it, is the delinquent applicant, needed to be heard before a decision was reached as to the penalty imposed on it on account of the alleged infraction - 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. The exchange of messages between Messrs. Gahoi and Goel raises concerns with regard to the purity of the process. It is obvious that the system for evaluation put in place under the aegis of MHI is less than foolproof and is amenable to influence and interference from third parties. MHI needs to enquire into this aspect of the matter so that in the future, such incidents don t occur. The first impugned judgement is set aside. Consequently, the communication dated 26.04.2022 whereby JBM Ecolife has been held to be no longer eligible to continue its participation in the subject tender process would have to be quashed. This would also be the fate of the other communication dated 26.04.2022 which was served on JBM Ecolife by the e-tender administrator whereby it was informed that its bid was found to be Non-Responsive for Technical Evaluation - appeal disposed off.
Issues Involved:
1. Justification of debarment/blacklisting of JBM Electric by MHI. 2. Impact of the debarment/blacklisting on JBM Ecolife's participation in tenders. Detailed Analysis: Issue 1: Justification of Debarment/Blacklisting of JBM Electric by MHI Facts and Background: - JBM Electric applied under the PLI Scheme, declaring a GGR of Rs. 10,590.75 crores, which included intra-group sales worth Rs. 910.54 crores. - MHI debarred JBM Electric for including intra-group sales in its GGR, deeming it a violation of Clause 4 of the Integrity Pact Undertaking. Arguments by UOI: - JBM Electric included intra-group sales in its GGR, which should have been excluded as per the definition of GGR in Clause 2.16 of the PLI Guidelines. - The inclusion of intra-group sales was a deliberate misstatement, triggering Clause 4 of the Integrity Pact, leading to debarment. - The well-established accounting standards recommend the exclusion of intra-group sales to avoid double counting. Arguments by JBM Electric: - There was no explicit requirement in the PLI Scheme, PLI Guidelines, or FAQs to exclude intra-group sales while calculating GGR. - The financial statements submitted included related party transactions, indicating transparency. - The intra-group sales were included based on the understanding that each group company independently carried out manufacturing activities, adding value to the products before selling them to third parties. Court's Analysis: - The court found no explicit obligation in the PLI Scheme or Guidelines to exclude intra-group sales. - The financial statements submitted by JBM Electric were audited and included related party transactions. - The decision to debar JBM Electric was taken without issuing a proper show-cause notice, violating principles of natural justice. Conclusion on Issue 1: - The court held that MHI was not justified in debarring JBM Electric without a proper show-cause notice and hearing. The impugned communications dated 25.04.2022 and 29.04.2022 were quashed. Issue 2: Impact on JBM Ecolife's Participation in Tenders Facts and Background: - JBM Ecolife was excluded from the subject tender due to the debarment of its sister concern, JBM Electric. - JBM Ecolife's exclusion was based on Clause 16 of the Guidelines on Debarment of Firms, which triggered a "self-activating" debarment for all group companies. Arguments by JBM Ecolife: - JBM Ecolife argued that its exclusion was unjustified as the debarment of JBM Electric was not legally sustainable. - The exclusion violated principles of natural justice as JBM Ecolife was not given an opportunity to be heard. Court's Analysis: - The court noted that the first impugned judgment was based on the debarment of JBM Electric. - Since the debarment of JBM Electric was quashed, the exclusion of JBM Ecolife from the tender process was also unjustified. Conclusion on Issue 2: - The court set aside the first impugned judgment and quashed the communications dated 26.04.2022, which excluded JBM Ecolife from the tender process. - JBM Ecolife was allowed to participate in the subject tender from the stage it was positioned when it approached the writ court. Conclusion: - LPA No. 500/2022 preferred by UOI was dismissed. - LPA No. 327/2022 preferred by JBM Ecolife was allowed. - The communications dated 25.04.2022 and 29.04.2022 regarding the debarment of JBM Electric were quashed. - The communications dated 26.04.2022 excluding JBM Ecolife from the tender process were also quashed. - JBM Ecolife was allowed to participate in the tender from the stage it was at when it approached the writ court.
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