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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 ..... ed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - LPA 327/2022, CM Nos. 23025/2022 & 35938/2022, + LPA 500/2022, CAV 256/2022 & CM No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound its grievance that it (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 Production Linked Incentive Scheme [hereafter referred to as PLI Scheme ] up until 31.03.2027. 1.3 Thus, the net effect of the second impugned judgment is that the debarment directive issued by MHI on 25.04.2022, which was communicated to JBM Electric by IFCI Ltd. on 29.04.2022, is no longer operable; at least not for the moment. Much will depend, though, upon the outcome of the instant appeals. 1.4. JBM Electric s sister concern i.e., JBM Ecolife had preferred the appeal (i.e., LPA 327/2022) against the dismissal of its writ petition by the learned Single Judge via the first impugned judgment at the point in time when debarment directive issued against JBM Electric was in operation. The 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. The learned Single Judge via the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t City Limited, Jammu; (b) Aurangabad Smart City Development Corporation Limited, Aurangabad; (c) Navi Mumbai Municipal Transport (NMMT), Navi Mumbai; and (d) Assam State Transport Corporation, Guwahati. (ii) The employer and/or the authority considering the bid(s) submitted by the appellant will not reject it on the ground that the appellant has been debarred by respondent no.1/UOI-MHI. This direction, however, will not come in the way of the employer and/or authority considering the bid, rejecting the appellant‟s bid on other tenable grounds. (iii) Needless to add, the aforementioned direction will not come in the way of the learned Single Judge disposing of the writ action. The writ action will be adjudicated without being influenced by the directions issued by us hereinabove. (iv) The aforementioned directions have been issued, without prejudice to the rights and contentions of both the parties. 7. Since the learned Single Judge has fixed the matter before the vacation Bench on 10.06.2022, we would request the concerned bench to dispose of the same, if time permits, on that date or any other date which is convenient to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77;500 crore. Investment Global Investment of Company or its Group* Company(ies) in fixed assets (gross block) of ₹3,000 Global Investment ofCompany or its Group* Company(ies) in fixed assets (gross block) of ₹ 150 crore *Group Company(ies) shall mean two or more enterprises which, directly or indirectly, are in a position to: Exercise twenty-six percent or more of voting rights in the other enterprise; Or Appoint more than fifty percent of members of Board of Directors in the other enterprise. (As defined in the FDI Policy Circular of 2020) Note: i. Above Eligibility criteria to be met based on audited financial statements for year ending March 31, 2021. ii. An applicant company or its Group company(ies) must satisfy the entire eligibility criteria to be eligible under the scheme of the PLI Scheme, the threshold eligibility criteria which an applicant had to meet was a GGR of Rs. 10,000 crores. According to MHI, JBM Electric had incorrectly pegged its GGR at Rs. 10,590.74 Although the GGR figure noted in the communication dated 29.04.2022 issued by IFCI Ltd. is Rs.10,590.74 crores, JBM Electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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? 6. Before we get into the nitty-gritty of the arguments advanced before us it may be useful to etch out the broad contours of the case. 7. On 01.04.2015 the Government of India (GOI) framed a scheme for giving a fillip to the manufacture of electric vehicles in India. This scheme came to be known as Faster Adoption and Manufacturing of Electric Vehicles in India (FAME). This scheme was initially valid for two years and was extended from time to time. As of now, it would expire on 31.03.2024. 8. Alongside the FAME Scheme, GOI also notified the PLI Scheme for automotive and auto components. The notification in this behalf was issued on 23.09.2021. Guidelines for the PLI Scheme were also notified via a notification of the same date i.e., 23.09.2021. 8.1. Besides this, on 02.11.2021, the Procurement Policy Division of the Ministry of Finance, UOI issued an Office Memorandum (OM) titled Guidelines for Debarment of Firms from Bidding . 9. It is in this setting that JBM E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o perceptible action was taken until 11.02.2022. 15. The record also discloses that in the morning hours of 11.02.2022, there was a telephonic interaction between Mr Gahoi and Mr Goel. The record reveals that Mr Gahoi, thereafter, brought the issue to the notice of one Mr Kunal Naik, DGM, IFCI Ltd., at about 11.00 hrs. on 11.02.2022. Apparently, the matter was thereafter, placed before Mr Rajnesh Singh, Director, MHI and the Joint Secretary, GOI, MHI. 16. The fallout of these meetings was that JBM Electric was excluded (albeit, without recourse to it) from the final list published by MHI concerning those applicants whose applications had been approved under the PLI Scheme. 17. This triggered a meeting between the representative of JBM Electric and the officers of IFCI Ltd. on 14.02.2022. It is at this meeting that JBM Electric was informed that its application under the PLI Scheme was rejected as it had wrongly included intra-group sales in its GGR figure and that once intra-group sales were excluded, its GGR would fall below the minimum eligibility threshold of Rs. 10,000 crores. 18. JBM Electric defended its position and in this context, furnished information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sent at 12:55 hrs. Via this communication, JBM Ecolife was tersely informed by CESL that its bid had been found non-responsive for technical evaluation. Within the next five minutes i.e., at 13:00 hrs. CESL opened the financial bids concerning the subject tender. 23. Being pushed to the corner, JBM Ecolife moved the writ court the very next day i.e., 27.04.2022. By this writ petition i.e., WP(C) 6708/2022 JBM Ecolife laid a challenge to the two communications dated 26.04.2022 served by CESL on JBM Ecolife. 24. Curiously, JBM Electric was informed by IFCI Ltd only on 29.04.2022 that it had not only been found ineligible under the PLI Scheme but had also been debarred from future tenders along with its group companies. 25. As noticed right at the outset, JBM Ecolife failed to persuade the learned Single Judge that it had wrongly been ousted from the subject tender. Thus, its writ action which was dismissed via the first impugned judgment, resulted in JBM Ecolife preferring an appeal i.e., LPA 327/2022. 26. This appeal was lodged on 11.05.2022. Almost simultaneously i.e., on 12.05.2022, JBM Electric filed a separate writ action before the learned Single Judge i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n within its GGR figure in contravention of Clause 3.2 of the PLI Scheme and Clause 2.1 of the PLI Guidelines. 32.2 The application filed by JBM Electric disclosed that it had achieved a GGR of Rs.10,590.75 crores. What was not disclosed was that it contained intra-group sales worth Rs.910.54 crores. Once this figure was adjusted, JBM Electric s GGR would fall below the minimum prescribed eligibility threshold of Rs.10,000 crores. This was an aspect which was deliberately kept under wraps by JBM Electric while filing its application under the PLI Scheme. 32.3 IFCI Ltd. in its capacity as a Project Management Agency (PMA) had brought the aforesaid aspect to the notice of the representative of JBM Electric at a meeting convened on 14.02.2022. JBM Electric, on its part, had sought to defend its position via representations made through e-mails dated 15.02.2022 and 17.02.2022. Since JBM Electric had made a false declaration concerning its GGR, the provisions of Clause 4 of the Integrity Pact/Undertaking were triggered and a decision was taken by MHI to debar/blacklist JBM Electric and its sister concerns/group companies. This decision was taken by MHI, which was communicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, involves the disbursal of public funds. 32.12 The other submission advanced on behalf of JBM Electric that debarment/blacklisting could be ordered only if the applicant had availed of the benefit under the PLI Scheme is erroneous for the reason that if a false declaration was made, as it is contended on behalf of UOI, the consequences should be the same, whether or not the applicant succeeded in its attempt to secure the desired benefits. 32.13 Given the aforesaid submissions, it is clear that the infraction committed by JBM Electric of including intra-group sales while calculating GGR is not in dispute. Therefore, given this admitted fact, the learned Single Judge ought not to have set aside the impugned communications. This is a case where the learned Single Judge had issued a futile writ as the result even after remand would be no different. 32.14 The government i.e., MHI has an inherent right to debar entities, even if there was no express stipulation provided in the tender. There are several cases where the courts have upheld the debarment of entities where incorrect information was provided or vital information was withheld. 32.15 The MHI, as a matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue which each of the companies falling in the group had earned from manufacturing activity. (iii) In arriving at the GGR, the applicant was required to add up the revenue earned by each of the companies which formed part of the group from manufacturing activities. 34.2 There was no indication whatsoever in the PLI Scheme, PLI Guidelines and/or FAQs that the applicant(s) was/were required to exclude intra-group sales while framing up its/their GGR figure. 34.3 There was no misdeclaration as alleged or at all. JBM Electric had not only furnished an annual report of its holding company but had also submitted duly audited financial statements of its group companies in support of the GGR figure mentioned in the application filed under the PLI Scheme. The self-certification of the revenue from the group companies was also filed along with the application. 34.4 The financial statements of its group companies [that were submitted by JBM Electric] were aligned with the provisions of AS 24 which requires disclosure of all related party transactions. The related party transactions are thoroughly examined by statutory auditors and also form part of the notes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., for instance, if financial information is sought for use in Initial Public Offerings (IPOs), demergers, takeovers, etc. In such situations, while preparing combined financial statements, it is advised that the same principle should be followed as those which apply to consolidated financial statements. In other words, when combined financial statements are prepared, inter alia, intra-group transactions and profits or losses should be excluded. Thus, the guidance note, apart from being recommendatory, has no general application in all situations, which will include a situation, which arose in the instant case, i.e., an application being preferred under the PLI Scheme. 34.9 Likewise, AS 21 has no applicability to the instant case. AS 21 concerns principles to be adopted while preparing consolidated financial statements. JBM Electric, as is evident, was required to place on record its GGR and not financial statements. The objective with which AS 21 has been framed is to provide information about the parent/holding company and its subsidiaries as a single economic entity. The emphasis is, thus, on economic resources controlled by a group. 34.10 PLI Scheme, on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htaway debar/blacklist JBM Electric. (ii) Second, if we were to find that MHI s action is not justified, how would it impact the fate of JBM Ecolife, which stood excluded from the race to win the subject tender because its group company i.e., JBM Electric had been debarred/blacklisted. 36. Insofar as the first issue is concerned, it is the common case of parties that JBM Electric had pegged its GGR at Rs.10,540.75 crores and that this figure, although above the minimum prescribed threshold which was set at Rs.10,000 crores, included intra-group sales transactions amounting to Rs.910.54 crores. Therefore, if the intra-group sales transactions are excluded, as is contended on behalf of UOI, JBM Electric s GGR would fall below the minimum threshold i.e., Rs.10,000 crores. 36.1. Thus, while the aforesaid facts are not in dispute, what contesting parties wrangle about is, one, whether there was any obligation cast on JBM Electric to exclude intra-group sales and, two, whether, in the given circumstances, the inclusion of intra-group sales would tantamount to misrepresentation/misdeclaration, leading without more, to blacklisting/debarment. 37. The argument advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements are met by presenting consolidated financial statements prepared under the applicable Accounting Standards. 2. There may be occasions such as take-overs of entities and/or divisions/segments/businesses, demergers, spin-offs, initial public offerings, etc. where specific financial information is required for part or parts of entities which may or may not be part of a group. Similarly, group financials may be required for group loan arrangements. The term group‟, in such cases, for the purpose of this Guidance Note may include the entities and/or divisions/segments/businesses which are being combined as per the terms of the loan arrangement. In the absence of control, preparation of consolidated financial statements would not be appropriate. In such cases, as well as to present relevant combined financial information of part or parts of one or more entities, combined financial statements may be prepared . xxx xxx xxx Objective 6. This Guidance Note provides the meaning of combined/carve-out financial statements, indicative situations in which these may be required to be prepared and procedure for preparation of the same and required discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e presented as a combined financial statement or carve-out financial statements. 41. As noted above, no such obligation was cast on the applicants while filing their applications under the PLI Scheme. The information that was sought via the online application was under the following heads : (i) Name of the company. (ii) Registered address. (iii) Registration number. (iv) Relationship with the group company. (v) Revenue from automotive and/or auto component manufacturing (for existing automotive manufacturing company). This was the information to be given for FY 2020- 2021 (Rs. in crores). (vi) Investment in fixed assets (gross block) (for existing automotive manufacturing company) as on 31.03.2021. (vii) Net worth (for new non-automotive investment company) (Rs. in crores). 41.1 None of these columns even remotely indicated that revenue earned through intra-group sales had to be excluded. 42. Likewise, AS 21, which is also relied upon by UOI, has very specific objective criteria i.e., preparation and presentation of consolidated financial statements, which are used by parent/holding companies to provide financial infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flagged the issue concerning the inclusion of intra-group sales if, according to it, an applicant, while calculating its GGR, ought not to have included intra-group sales. Evidently, this was not the understanding of IFCI Ltd till it was egged on by a rank outsider. 43. The submission of Mr Venkataraman that the onus for disclosing the inclusion of intra-group sales could not be shifted to the UOI, misses two crucial points. First, this argument could have been sustained if there was an explicit requirement to exclude intra-group sales while calculating GGR. Second, the UOI through the PMA i.e., IFCI Ltd. had sought relevant material [i.e., financial statements of group companies] from which the information concerning revenue earned by each one of the constituents for FY 2020-2021 through activities involving the manufacture of automotives or auto components was ultimately extracted. As alluded to above, the audited financial statements, according to JBM Electric, adverted to related party transactions and, therefore, information concerning intra-group sales transactions was always available with UOI s financial evaluator i.e., IFCI Ltd. 44. This brings us to the second a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of natural justice are founded on the well accepted universal norm that justice is not only done but should also manifestly seen to be done. 46.1 Though, principles of natural justice do not lie in a straight jacket and in their application [depending on the kind of inquiry and the subject matter which is being inquired into], a certain amount of flexibility may have to be factored in, it still does not efface the right of the affected party to insist that it ought to be put to notice both as regards the charge levelled against it and the possible penalty that would follow if the charge was proved. 46.2 This principle would apply with greater force where the penalty imposed could lead to grave civil and criminal consequences. 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. 47. Thus, for the very same reasons, we are not persuaded to accept the submission advanced on behalf of UOI that the learned Single Judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Messrs Rohatgi and Sethi] is that the punishment of blacklisting could be imposed on a delinquent applicant only if disbursal of incentives under the PLI Scheme takes place as such an eventuality would have caused loss to the public exchequer. 48.4 We will, for the moment, accept the construction placed on Clause 4 by Mr Venkatraman. In other words, even when incentives under the PLI Scheme have not been disbursed, but the application is closed or rejected by MHI because of an incorrect statement made therein, MHI would not be denuded of its power to blacklist an applicant. That said, blacklisting/debarment is clearly one of the very many options available to MHI. It is precisely for this reason that MHI needed to issue a show cause notice to JBM Electric which would not only advert to the charge levelled against it but also to the penalty it proposed to impose on JBM Electric. It is quite possible that after according a hearing to its authorized representative, it could conclude that this was a case in which JBM Electric should be blacklisted/debarred. It is also possible that after hearing the authorized representative of JBM Electric and examining the material on record, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistered by it. As has been observed in the preceding paragraphs of this decision, the provisions engrafted in the Guidelines envisage a self-activating debarment the moment an allied firm/sister concern comes to be blacklisted. The disqualification of the petitioner was thus, an inevitable fallout, an inescapable consequence. Regard must also be had to the fact that no fruitful purpose could have been possibly served by the second respondent placing the petitioner on notice. This since it would have been clearly beyond its province to examine or consider any challenge that the petitioner may have taken or urged with respect to the order of 29 April 2022. The Court, in the facts of the present case, thus finds that while the petitioner may not have been afforded an opportunity of hearing, no prejudice stood caused to it. A notice to the petitioner prior to the issuance of the impugned communication would have thus clearly been an empty formality. 52. Since, the impugned communications dated 25.04.2022 and 29.04.2022 issued by MHI and IFCI Ltd. respectively, concerning debarment of JBM Electric and group companies have been quashed by the learned Single Judge via the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired not only to decide whether or not intra-group sales could have been included in calculating the GGR, but also as to the punishment that is to be accorded in the instant case; both aspects need adjudication once a proper show cause notice is framed in that behalf and served on JBM Electric. This is not a case of a futile writ being issued as is contended on behalf of UOI. The following observations of the Supreme Court in the case of SL Kapoor v Jagmohan; (1980) 4 SCC 379 will make this abundantly clear: 17. Linked with this question is the question whether the failure to observe natural justice does at all matter if the observance of natural justice would have made no difference, the admitted or indisputable facts speaking for themselves. Where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the court may not issue its writ to compel the observance of natural justice, not because it approves the non-observance of natural justice but because courts do not issue futile writs. But it will be a pernicious principle to apply in other situations where conclusions are controversial, however, slightly, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Annamunthodo v. Oilfields Workers' Trade Union [(1961) 3 All ER 621, 625 (HL)] Lord Denning, in his speech said (at p. 625): Counsel for the respondent Union did suggest that a man could not complain of a failure of natural justice unless he could show that he had been prejudiced by it. Their Lordships cannot accept this suggestion. If a domestic tribunal fails to act in accordance with natural justice, the person affected by their decision can always seek redress in the courts. It is a prejudice to any man-to be denied justice. 21. In Margarita Fuentes v. Tobert L. Shevin [32 L Ed 2d 556, 574] it was said (at p. 574): But even assuming that the appellants had fallen behind in their installment payments, arid that they had no other valid defenses; that is immaterial here. The right to be heard does not depend upon an advance showing that one will surely prevail at the hearing. To one who protests against the taking of his property without due process of law, it is no answer to say that in his particular case due process of law would have led to the same result because he had no adequate defense upon the merits. 24. The matter has also been tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge. It is again absolutely basic to our system that justice must not only be done but must manifestly be seen to be done. If justice was so clearly not seen to be done, as on the afternoon in question here, it seems to me that it is no answer to the applicant to say: Well, even if the case had been properly conducted, the result would have been the same. That is mixing up doing justice with seeing that justice is done (per Lord Widgery, C.J. at p. 1375). In our view the principles of natural justice know of no exclusionary rule dependent on whether it would have made any difference if natural justice had been observed. The nonobservance of natural justice is itself prejudice to any man and proof of prejudice independently of proof of denial of natural justice is unnecessary. It ill comes from a person who has denied justice that the person who has been denied justice is not prejudiced. As we said earlier where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the court may not issue its writ to compel the observance of natural justice, not because it is not necessary to observe natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to as authority ], having to award the contract to another entity at a much lower premium, causing substantial loss to it. Resultantly, the petitioner/bidder was debarred from participating or bidding for future projects for one year from the date of the said order being passed. 56.2. Given these facts, the Court refused to intervene with the blacklisting order. The Court ruled that, since respondent no.2/authority had the power to enter into a contract by necessary implication it also had the power not to enter into a contract. 56.3. One cannot quibble with the proposition that UOI has both the power to enter into a contract and for good reason, also the power not to enter into a contract. That said, in cases where the State [in this case UOI] so decides, it will have to conform to the rigour of Article 14 of the Constitution, as every person has a right to be treated equally when the State seeks to establish a contractual relationship. [See Erusian Equipment and Chemicals Ltd. v State of WB; (1975) 1 SCC 70; this judgement has been cited with approval in Patel Engineering Ltd; see Paragraph 14 and 15 at pages 262-263] 57 The other judgement referred to by UOI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to JBM Electic, it would impact JBM Ecolife s bid, this contention has been roundly refuted by JBM Ecolife. We are of the opinion that this is an aspect that the concerned authority will have to examine on remand. 61. Although we have briefly touched upon the manner in which the complaint was received by Mr Gahoi of IFCI Ltd., it was not elaborated as the WhatsApp conversation between Mr Gahoi and Mr Goel are already part of the record, besides the statements made by the former and Rajnesh Singh, Director of MHI, before the court. 61.1 However, at this stage, we may note that 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. We must note, the argument advanced on behalf of the UOI that as long as the complaint had merit it could be progressed further, leaves us with a feeling that the means are not as important as the end. It is o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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