PETITIONER: <NAME> AND ANR. ETC. ETC. Vs. RESPONDENT: UNION OF INDIA AND ORS. DATE OF JUDGMENT02/02/1995 BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) SEN, S.C. (J) CITATION: 1995 AIR 1178 1995 SCC Supl. (2) 512 JT 1995 (2) 420 1995 SCALE (1)437 ACT: HEADNOTE: JUDGMENT:

1. Leave granted.

2. <ORG> (<ORG>) is engaged in the manufacture of several antibiotic drugs including Penciling. It has a plant at Pimpri in the State of Maharashtra. Though the installed capacity of the plant is 1600MMM, , it has been able to produce only 850MMU. <ORG> is a Government company fully owned by <ORG>. There is another government company, <ORG>, pro- ducing the same drug. We arc told that at present there is only one unit in private sector, <ORG>, which is producing the said drug. The total production of Penn-G within the country is sufficient to meet only 45% of the country's total requirement. The remaining 55% is being imported. The price of the imported Penn-G is half the price at which the locally produced drug is sold.

3. Penn-G is produced through complex fermentation under controlled conditions of strains of the fungus Pecillium Notatum and Pencillium Chrysogenum. It is stated that the companies all over the world have been trying to develop the strains to improve the quality and yield. <ORG>, which has been producing the drug in this country for over two decades, has also been trying to improve the strain as also the quality and yield of the said drug. From 1976 upto 1986, it was using the Filamentous Toyo Jozo Strains from Japan. Since the said technology became outdated, it switched over in 1986 to <ORG> from <ORG>, U.S.A. Even so, the production could not exceed 55% of the installed capacity. For all these reasons, <ORG> has been trying to devise ways and means to improve the production, quality and yield.

4. <ORG> of Holland (hereinafter referred to as '<ORG>') is the leading producer of <ORG> in the world. At present, it controls 20 % of the world market. It has got plants in several parts of the world.

5. According to a <ORG> of India publication "Technology in Indian <ORG>-G/V Industry" - a status report prepared under the national register of foreign collaboration (published in April, 1991) - <ORG> have developed strains capable of yielding above 60,000 units/ml within a relatively short period. <ORG> of Spain has developed strains yielding 60,000 units/ml whereas <ORG> are working at R&D level with strains capable of yielding above 80,000 units/ml. The production capability of most of the companies around the world is 60,000 units/ ml. Only <ORG> seems to be ahead. The said publication also states that most of the important information relating to <ORG> technology is not published since the companies keep it a closely guarded secret.

6.s a result of the negotiations between <ORG> and <ORG> (a company formed by <ORG> and <ORG> coming together), a Memorandum of Understanding (MoU) was signed between <ORG> and M.<ORG> on June 20, 1994. The appellants in these three appeals, viz., <ORG>, <ORG> and <ORG> had also offered to collaborate with <ORG> for the purpose of improving the quality and yield of <ORG> and to achieve the full installed capacity. Each of them had also offered to being foreign technology through their foreign collaborators. Their offers were. not accepted by the <ORG> which entered into a MoU with M.<ORG> on June 20,1992 as aforesaid. Soon thereafter, these three appellants filed writ petitions in <ORG> questioning the validity of the said MoU. Their case was that though they offered to provide equally superior technology and had indeed offered more advantageous terms to <ORG>, their offers were rejected mainly because of the bias on the part of the Managing Director of <ORG>, <NAME> It is alleged that Sri <NAME> was interested in having collaboration only with M.<ORG> and with nobody else and for that reason he managed to see that the offers of all others are rejected. Different reasons were offered by Sri <NAME> to different parties who approached for such cooperation. He did not provide them the opportunity to inspect the plant of <ORG> nor did he provide them the relevant information to enable them to formulate a specific offer. The malafides on the part of Sri <NAME>, it is alleged, are responsible for the impugned MoU whereunder the <ORG> has agreed to lease out its plant and all other facilities for an annual amount of Rs. 17 crores to the proposed <ORG> (J.V.C.) to be formed by <ORG> and M.<ORG>, whereas the appellants were prepared to offer a lease amount far above the said figure. The malafides on the part of Sri <NAME> is evident from the fact that though <ORG> had stipulated a minimum low amount of Rs.31.68 crores he flouted the said stipulation and agreed to a low figure of Rs. 17 crores. It is submitted that <ORG>, being a government owned corporation, is an authority within the meaning of Article 12 and that it was bound to consider all the offers received in a fair and impartial manner giving an equal opportunity -to all competitors to give their bids and select the most suitable among them. This fairness has not been observed by the <ORG> in arriving at the impugned MoU. Indeed, the submission is that the <ORG>/<ORG> should have called for tenders. or offers on a competitive basis and selected the most suitable among them. This, it is submitted, is the requirement of Article 14. The impugned MoU has, however, been arrived at in a hush hush manner. Even today, nobody knows what are the terms and conditions of the said MoU except the lease amount. A public body cannot and should not adopt such a procedure, it is submitted. There should be transparency in its dealings which is woefully lacking in this case. Reliance is placed upon the decisions of this Court in <CITATION> (1 994 J.T.(4) 532) and <CITATION> . (1993 (1) S.C.C.445) as well as the decision of <ORG> in <CITATION> (A.I.R. 1992 All.88). <ORG>, however, has repelled all the said contentions and dismissed the writ petitions.

7. The case of the respondents*, on the other hand, is that this was not a case where the government could have followed the practice of inviting the tenders. Such a procedure was just not possible in the circumstances. This was not a case of awarding a contract or a simple case of granting lease. It was a case where <ORG> was trying to import the best technology in the world to achieve its installed production and to improve its quality and yield while at the same time reducing the cost of production so as to compete in the world market. With the liberalization policy, there was an apprehension of import of <ORG> being placed on the O.G.L. (Open General Licence) in which case the <ORG> would have been driven out of market because the cost of <ORG> produced by it is double the price of imported <ORG>. Hence the urgency. No foreign company was prepared to part with technology except by way of <ORG> Each of the appel- lants have or proposed to have, a foreign company as its partner and each of them was offering the technology of its foreign partner. <ORG>, however, found that <ORG> is the world leader in the field that it has the best technology in the world and has a share of 20% in the world market. A tieup with such market leader is bound to prove beneficial to <ORG> Over the last several years, several Indian companies including the <ORG> have been trying to obtain technology from <ORG> but they failed. Only in the year 1993, did <ORG> agree to the <ORG>'s. proposal for collaboration but only through its Indian partner, viz., M.<ORG> The foreign collaborators of some of the appellants do not have technology comparable to <ORG> and none of them have a *The respondents to the writ petitions in <ORG> and in these appeals are (1) <ORG> represented by the Secretary to <ORG>, (2) <ORG>(P) Ltd., (3) <ORG>, M.D. of <ORG> and (4) Max-<ORG>

sizeble share in the world market. According to the respondents, the position in 1993 is the following.

Company Rating % share of world's production in 1993

Gist <ORG>, Holland I 20.0 <ORG>, Austria II 11.5 <ORG>, Spain III 11.0 <ORG>, UK. IV 8.5 <ORG>, UK. V 7.5 <ORG>, UK. VI 6.0 <ORG>, Germany VII 5.0

8. It is stated further by the respondents that while <ORG> offered the technology of <ORG>, <ORG> and <ORG> offered the technology of <ORG> of Slovakia. The technologies offered alongwith the facts relevant to each of these appellants was considered and their offers rejected by <ORG> of <ORG> In the circumstances, the appellants cannot complain that their offers were not fully and fairly considered. The real reason for the appellants approaching the court is that they are afraid of being driven out of market if the proposed collaboration between <ORG> and <ORG> bears fruit. Because of their inferior technology, they will not be in a position to compete with the proposed <ORG> and this is the real reason why they are out to scuttle the MoU between <ORG> and <ORG> In particular, it is stated that in the case of <ORG> it did not even disclose the name of its foreign collaborator in the first instance and only much later did it indicate that its foreign collaborator was <ORG> of Slovakia. The letter enclosed by them from the said foreign company was a vague one in the sense that it only expressed their willingness to cooperate with <ORG> in providing technical knowhow subject to their inspection of <ORG> facilities and satisfactory terms being negotiated between them. So far as <ORG> is concerned, it is installing its own plant and the technology being adopted by it has been proved only at pilot plant level and not at commercial plant level, <ORG> did not wish to experiment with this new technology. So far as <ORG> is concerned, its tie-up is also with <ORG> of Slovakia, whose technology was found to be inferior than <ORG> It is stated further that notwithstanding such rejection, their offers were reevaluated by <ORG> at the instance of <ORG>. Even on such reevaluation, it was found that the collaboration with <ORG> is more in the interest of <ORG> than collaboration with any of the appellants or their foreign collaborators. The allegations of bias and malafides attributed to <NAME> are denied specifically.

9. Before we deal with the contentions urged by the appellants, it would be appropriate to examine the, relevant facts and to note how the offers of the appellants and the offer of M.G.B. were dealt with and processed by <ORG>..

10. In August, 1993, the Managing Director of the <ORG>, <NAME>, sought permission of the <ORG> to visit Holland between August 30, 1993 and September 2, 1993 to discuss and finalise a MoU (Memorandum of Understanding) between <ORG> and <ORG> with whose representative, <ORG> was having discussions. In this letter, the Managing Direc- tor set out the broad outline of the proposed J.V.C. between <ORG> and <ORG> While approving the visit, <ORG> of India directed that Managing Director should not finalise the MoU or enter into any commitment. It directed that all the alternative proposals should be examined for their relative merits and advantages.

11. In the meeting of <ORG> of <ORG> held on 20th September, 1993, the Managing Director explained in detail the progress of Pencillin production and also gave a detailed account of the discussion he had with <ORG> in Holland. He explained the salient features of the draft <ORG> proposed to be entered into with M.<ORG> He stated that the technology to be obtained from <ORG> would be the best in the world and that it is a lifetime opportunity for <ORG> to get this technology. He stated that with little modification, the production of pencilling can be increased substantially. He placed before the Board a profile of the increased production and profitability with the induction of the M.<ORG> technology. He also explained why the offer of <ORG> labs, who offered to bring in the technology of Hoescht, AG, Germany was not definite or acceptable. He pleaded for approval of the draft MOU between M.<ORG> and <ORG> The Chairman of the Board, however, expressed his opinion that since approval of the proposed Mou would require the approval at the highest level in the government, the company should formulate its proposal indicating the examination of available options including the possibility of direct tie-up for acquiring technology and participation. Accordingly, it was decided to explore the available options. The Managing Director was asked to obtain extension of time by a month for signing the proposed <ORG> with M.<ORG>

12. At the meeting of <ORG> held on October 10, 1993, the Managing Director explained in detail the discussions the company officials had with <ORG> during their visit to Pimpri on 17th September, 1993. He explained that the foreign collaborators were not agreeable to transfer the technology on exclusive basis on the already agreed lumpsum, viz., on one million DN1, and hence the agreement could not be finalised. The Board noted the statement.

13. The matter came up before the <ORG> again on October 26, 1993. At this meeting, the Managing Director emphasised the need for upgrading the <ORG> technology and reiterated his opinion that technology of <ORG> is the best in the world and that <ORG> should not forego the op- portunity of obtaining its technology. He indicated the high profits which <ORG> would earn through such collaboration. The Managing Director also informed the <ORG> about the discussions he had with the <ORG> and expressed his opinion that right now the said group had no technology but that they would be able to arrange for the technology and would be getting in touch with <ORG> by 27th November, 1993. The Managing Director further submitted that the offers of M.<ORG> and others would be available by last week of November and that it is better that all these offers arc evaluated by a subcommittee of the <ORG>. Accordingly, the <ORG> constituted a Sub-Committee consisting of S/ Sri P.C.Rawal, <ORG> and Dr. <NAME>, Directors, to evaluate the proposals received.

14. At the meeting of the Board held on 5th December, 1993, the Managing Director informed the Board that though <ORG> had earlier informed that they would get in touch with <ORG> by 27th November, 1993 there was no response from them. He stated that <ORG> had no proven technology to offer to <ORG> At this meeting the Board noted that the need for <ORG> technology for the company was not considered by the Board earlier and the process for signing MOU was initiated by the Managing Director without any ap- proval of the Board, The Chairman stated that in addition to <ORG>, <ORG> and <ORG>, another party, <ORG> has also expressed interest in offering <ORG> technology to <ORG> The Board noted that <ORG> is setting up a <ORG> plant with <ORG> technology which is in no way superior to the technology presently employed by <ORG> It was accordingly decided to reject the offer of <ORG>. At this meeting the Managing Director informed the Board that once <ORG> gets top grade technology, the units of the other licencees within the country would become uneconomic and that is why they were trying to stall <ORG> from getting the best technology. He also stressed the need for up- grading the present technology by <ORG> and stated that with <ORG> technology the production of <ORG> will be doubled to 2000MMU in two years' time without any need for further fermentors. The Board then decided that all interested parties be informed to submit their proposals by 20th December, 1993 and that no further time shall be granted. The date, 20th December, 1993 was later extended to 31st December, 1993, in the Board meeting hold on 20th December, 1993. At this meeting (20th December, 1993) the Board rejected the offer of <ORG> on the ground that the technology of <ORG> of Slovakia offered by it was not superior to the technology presently employed by <ORG>

15. At the <ORG> meeting held on February 4, 1994 the <ORG> was informed that the proposal of <ORG> has been received. The <ORG> directed that these proposals be sent for evaluation to the <ORG><ORG><ORG> appointed earlier.

16. At its meeting held on 28th March, 1994, the <ORG> was informed that <ORG> and <ORG> (whose proposals were rejected by the <ORG>) have represented to <ORG> that they should be given a further opportunity of explaining their proposals whereupon the Government has directed the <ORG> to give a further opportunity to the said two companies. Accordingly, the representatives of these two companies were heard by the <ORG> which rejected both the proposals again. The <ORG> then heard the representatives of <ORG> about their proposals. The representative of <ORG> did not agree to having 49% interest in the proposed <ORG> (J.V.C.) and insisted upon equal sharing, i.e., 50% each.

17. By the date of the next <ORG> meeting on April 28, 1994, the report of the <ORG><ORG><ORG> (which was appointed in the <ORG> meeting dated October 26, 1993 to evaluate the proposals for upgradation of Pencillin technology) was received. It would be appropriate to briefly refer to the salient points in the report of the <ORG><ORG> at this stage.

18. Pursuant to the directions of the <ORG>, <ORG> says, it looked into the following four issues also in addition to the evaluation of the proposals of collaboration'received from various parties. The four issues referred by the <ORG> are:

"(i) The need for obtaining technology for upgradation of the production capacities in the Pencillin Plant and whether the technology can be obtained directly rather than going through the process of a joint venture;

(ii) Whether the technology indigenously would be adequate to achieve the objective of running <ORG> profitably;

(iii) In the event such a joint venture proposal as proposed by <ORG> management materialises, how best the interest of the employees can be protected-, and

(iv) <ORG> plant of <ORG> is a profit centre. Whether such a proposal for joint venture would leave <ORG> with non- (profit making centres?)"

19. The <ORG> held several sittings at which it heard a number of officials of <ORG> and others. It found inter alia that the cost of production of <ORG> is higher than <ORG> which in the opinion of the <ORG><ORG><ORG> was totally unwarranted. It was of the opinion that by rationalising the cost of production and by carrying out other measures, <ORG> would be in a position to cam substantial profits by itself without any tie<ORG>up with the foreign company. It also commented upon the failure of <ORG>, which is the pioneer and the largest manufacturer in the country, in not approaching the leading <ORG> manufacturers in the world directly for acquisition of technology and instead waiting for the Indian companies to enter into agreements with foreign technology sources and then entering into discussion with these Indian firms for collaboration. The <ORG><ORG>

Committee stated:

"59<ORG> As a result of the evaluation of the <ORG>'s production efficiencies, <ORG> is firmly of the view that there is tremendous scope for improvements and higher level of efficiency and cost reduction in the pencillin production operations of <ORG> even with the existing technology<ORG> It came as a surprise to the <ORG> that <ORG> which is the largest pencillin producer in the country, what to talk of comparing internationally, does not compare favourable with <ORG> pencillin production operation insofar as raw material land utility costs are concerned<ORG> A draft on latest cost price study report for the year 1994-97 on pencillin first crystals production as prepared by <ORG> a copy of which could be had by 2 1 st April, 1994 contain the actuals for the ye= 1992-93<ORG> In respect of raw materials costs per capital of pencilling production, <ORG> has been Rs<ORG>334 which is Rs<ORG>73 higher than Rs<ORG>261 spent by <ORG><ORG> For the utilities <ORG> spends Rs<ORG>259 which is Rs<ORG>69 higher Om Rs<ORG> 190 spent by the <ORG><ORG> Even if <ORG>'s cost of raw materials and utilities in the short term cannot be brought to the level of <ORG>, in the year 1995-96 when the production of <ORG> is expected to be II 00 MMU it should be possible for <ORG> to attain improvements and cost reduction to achieve profit of Rs<ORG>288 per Bu as examined above which should give the profit of Rs<ORG>31<ORG>68 crores (at current sale price for <ORG><ORG>G first crystal at a production level of II 00 MMU for <ORG><ORG>)"

20. The <ORG><ORG><ORG> then noted the fact that, offers of SPIC and P.B.G. have been rejected by the Board which rejection was reiterated after re<ORG>hearing them pursuant to <ORG> directions.

21. The <ORG><ORG><ORG> also noted that since <ORG> has failed to submit its proposal within the time specified the only proposal left was that of <ORG> After evaluating the proposal of <ORG> and its offer of Rs. 13 crores rental per annum and after considering the potential of <ORG> and its performance, the <ORG><ORG><ORG> expressed its opinion in the following words:

"62. The <ORG><ORG><ORG> is of the opinion that the proposal of leasing out pencillin production facilities of <ORG> to <ORG> in which both <ORG> and <ORG> would have fifty per cad equity each should be decided by the <ORG> keeping in view of the possibility of increasing production and productivity of pencillin operations in <ORG> without induction of new technology but by making improvements and achieving efficiency particularly in the areas of raw material consumption and utilities to substantial reduce cost. The acquisition of now technology if considered absolutely and if the same is to be inducted through 'the methodology of the proposed <ORG> then the lease rental of the <ORG>'s production facilities to be paid by the <ORG> should be computed keeping in view the financial parameters suggested by the <ORG><ORG><ORG>.

22.Now coming back to the Board meeting held on April 28, 1994, an elaborate discussion took place on the report of the Sub-Committee whereafter the Board took the decision which is recorded in the minutes. Paras 205.10.11 and 12 of the Minutes read as follows:

"205.10.11. After detailed discussion on the report of the <ORG>-<ORG> the <ORG> agreed that the Company should go in for higher levels of production beyond II 00 MMU which can be achieved with the present technology. and for which the costs could be reduced to the levels suggested by the <ORG>-<ORG>. It was decided that the Company should acquire technology for reaching a production level of 1800-2000 MMU without addition of more fermentors (except the two which are yet to be installed). It was also decided by the <ORG> that the only available option of acquisition of the technology offered through the route of <ORG> as proposed by <ORG> with <ORG> having 50% equity each in the <ORG> be accepted but the lease rental payable by the <ORG> to <ORG> should be computed taking into account the profit of Rs.31.68 crores at the level of production of 1100 MMU. To this, MD stated that this may not be ac- ceptable to <ORG> and he felt that at best <ORG> may agree to the increase in the lease rental offer of Rs.13 crores by Rs.one or two crores. He stated that the lease rental of Rs. 13 crores had been found to be fully justified by the evaluation presented before the <ORG>-<ORG>. However, the directors of the <ORG> except the MD agreed that lease rental of Rs.31.68 crore as computed by the <ORG><ORG> should form the basis of the calculation as this level of profitability is achievable at 1 100 MMU production and with reduction of materials and utilities cost by Rs. 110 as suggested by the <ORG><ORG>. 205.10.12.The <ORG> accordingly decided that the lease rental should be calculated at this assessed profitability of Rs.31.68 crores and this should be adjusted to account for depreciation, proportionate interest on lease rental paid by <ORG> on leased assets in the Pencilli Plant and adjustment for the income tax liability. (Reference - para 44 of the <ORG><ORG>'s report.) The <ORG> authorised the MD to compute the lease rental as above and communicate to <ORG> the lease rentals that would be acceptable to <ORG> from the <ORG> and in due course inform the <ORG> of their acceptance."

23.The Managing Director of <ORG>, <NAME> who did not agree with the <ORG> Resolution aforesaid, addressed a letter dated May 3, 1994 to the Secretary, <ORG>. This is a very detailed letter enclosing several work sheets. After setting out his reasons in detail as to why the <ORG> resolution stipulating a minimum lease amount of Rs.31.68 crores is not appropriate

- and after setting out the several advantages that would flow from the proposed J.V.C. between <ORG> and <ORG> - the letter concluded:

"2.0 To conclude, the Sub-Committee's report has not taken into consideration the following:-

(a)HAL's present technological limitations.

(b)The opportunity at hand for <ORG> in particular and India at large in forming a Joint Venture between <ORG> and <ORG>.

(c)Future fluctuations in the <ORG> pricing policy and the vagaries of price escalation of raw materials and utilities.

(d)Also the calculations of profit and other parameters as contained in the report need to be verified as indicated earlier in this letter.

It is, therefore, my request that the report may be got evaluated by you keeping in mind the points that have been raised by me."

24. After receiving the letter of the Managing Director aforesaid, <ORG> obtained the advice of Padmabhushan Prof M.M.Sharma, Direc-

tor and Head of <ORG>, <ORG>. Prof. <NAME> is a fellow of <ORG> and also a fellow of <ORG>. The judgment of <ORG> refers to the substance of the opinion tendered by Prof <NAME>. Prof.<NAME> is stated to have opined that the best technology for <ORG> in the world was with <ORG> and that it was in the interest of <ORG> as well as in the interest of the country to acquire that technology. <NAME> also opined that such first grade technologies in the frontier areas were just not available irrespective of their cost. He also approved the proposal of <ORG> and was of the opinion that it was in the commercial interest of <ORG> besides the national interest. It is after receiving this report that a "directive" under Article 117 of the Articles of Association was issued. The "directive" is container in the letter dated June 20, 1994 addressed to <NAME>, Managing Director, <ORG> It directs <ORG> to enter into a MoU at the ear<NAME>st with the M.<ORG> for establishing a <ORG> The letter reads as follows:

"Sir, I am directed to refer to your letter No.MD/IV/40 IO dated the 3rd May. 1994 on the subject cited above and to say that the matter relating to the proposed collaboration between <ORG> (<ORG>) and <ORG> a joint venture company of <ORG> and <ORG> of Netherlands. for setting up of a joint venture in the existing plant of <ORG> for manufacture of Pencillin, has been considered by the Government in the light of the position/issues raised in your above letter.

2. It has been decided with the approval of the Minister for Chemicals and Fertilisers to issue the following directive to <ORG> in exercise of the power under article 1 17 of the Memorandum and Articles of Associations of <ORG>;

(i) <ORG> may enter into a Memorandum of Understanding (MoU) at the earliest with <ORG> for establishing the proposed joint venture, subject to final approval of <ORG>.

(ii)The lease rent to be paid to <ORG> by <ORG> be negotiated immediately with <ORG> by a Committee comprising the Managing Director, <ORG>, the Joint Secretary and Financial Advisor, <ORG>, a part- time official, Director on the Board of <ORG> and <NAME>, Joint Secretary to the Government of India in <ORG> and the agreed amount be in- corporated in the Memorandum of Understanding.

Yours faithfully sd/-

(<NAME>. Secretary to the Govt of India."

25. Pursuant to the aforesaid letter, a Committee as contemplated in Para 2(ii) thereof was constituted. The Committee held negotiations with the representatives of the <ORG> and a MoU was signed on the same day stipulating an annual rental of Rs. 17 crores. On behalf of <ORG>, only the Managing Director , <NAME>, signed witnessed by two officials of the <ORG>

26. At this stage, going back a little, it may be stated that a <ORG> meeting was held on May 25, 1994. At this meeting, the Managing Director brought to the notice of the <ORG> the letter written by him to the Secretary, <ORG>. The <ORG> took objection to certain statements made in the said letter. The <ORG> was also critical of Prof <NAME>'s expertise in antibiotic fermentation processes - indeed with the very consultation with him in the manner it was done.

27. After the MoU was signed on June 20, 1994, the said fact was brought to the notice of <ORG> at its meeting held on September 6, 1994. The Board merely "noted" the fact.

28. We are told that <ORG> has not yet approved the MoU. The respondents' counsel explained that this was because of the pendency of the writ petition in <ORG> and these matters in this <ORG>.

29. It would be noticed that there is no reference to <ORG> in any of the Board Resolutions or in the Sub-Committee report. According to <ORG>, they have obtained technology from Biotica of Slovakia and have set up a plant which according to them was to go into production by the end of 1994. <ORG> says that it addressed a letter on April 12, 1994 to <ORG> expressing their interest in upgrading the technology of <ORG> and in improving the production by investing Rs.40-50 crores. It is stated that their offer was rejected by <ORG> on May 21, 1994 and that thereafter its representatives met the Minister of <ORG> on June 3, 1994 and represented their case. On June 15, 1994, it is stated, the Minister of <ORG> asked the Managing Director of <ORG> to consider <ORG>'s proposal. Its grievance is that without considering its case, the Managing Director entered into MoU with <ORG> on June 20, 1994 in an unseemly hurry.

30. It would be evident from the facts narrated above that the Managing Director of <ORG>, <NAME> was all out for a technological tie-up with <ORG> and with no other. To start with, he sought the permission of <ORG> to go to Holland in August/September, 1993 to discuss and finalise the MoU with M.<ORG> While permitting him to go and have discussion there, <ORG> instructed him not to enter into a MoU or to make any commitment since the Government was of the opinion that all the alternative proposals should be examined and a decision taken after examining the merits of each proposal. In the meeting of <ORG> of <ORG> held on September 20, 1993, Sri <NAME> explained the advantages that will accrue from a tie-up with M.<ORG> According to him, it was a lifetime opportunity for <ORG> which it should not forego. This was his theme throughout in all the <ORG> meetings. (Indeed, in one of the meetings, <ORG> found fault with Sri <NAME> for entering into negotiations with <ORG>/M.<ORG> without its approval. It appears obvious that Sri <NAME> had taken the permission of only <ORG> for entering into negotiations with <ORG>/M.<ORG> and informed the <ORG> only after his visit to Holland.) Finally, when <ORG> decided on April 28, 1994 that the lease amount payable by the proposed <ORG> (to be formed by <ORG> and M.<ORG> with 50 % share holding each) should not be less than Rs.31.68 crores per annum and instructed him accordingly, Sri <NAME> wrote a letter directly to the Secretary to <ORG>, <ORG> setting out in detail why the <ORG> resolution was not appropriate and why it is not realistic to accept lease amount at that level. It also appears prob- able that it was at his instance that <ORG> sought the opinion of an expert, Viz., Prof <NAME>. After receiving the opinion of Prof <NAME>, <ORG> gave the "directive" to <ORG>, addressed to Sri <NAME> on June 20, 1994, to enter into a collaboration agreement with M.<ORG> in the form of a Joint Venture Company. For the said purpose, <ORG> itself constituted a Committee of three members including the Managing Director, <NAME>. On that very day, i.e., 20th June, 1994, negotiations were held and MoU signed between <ORG> and M.<ORG> It does not appear that <ORG> of <ORG> was having any part in the negotiations or in the matter of or entering into the MoU with M.<ORG> The MoU was signed by Sri <NAME> on behalf of the <ORG> The alacrity with which MoU was signed on the very day on which the Government directive was issued also shows the deep interest the Managing Director had in collaboration with M.<ORG> But it is not possible to say beyond this. It is quite likely that Sri <NAME> was actuated by the best of intentions, that he was of bona fide belief that entering into a technological agreement with M.<ORG> (which really meant technical collaboration with <ORG> of Holland) was a lifetime opportunity for <ORG> which it should not forego. It could also be that he was genuinely satisfied that since <ORG> is the world leader and has the best technology, it can deliver goods far better than any other foreign company. It is also possible that Sri <NAME> was for collaboration with M.<ORG> for all the wrong reasons. We are not able to say one way or the other. The presumption is that being the Managing Director of <ORG>, he was acting in its best interests. This presumption is not displaced in this case. The fact remains that <ORG> is the world leader in <ORG> field. Its technology is one of the best if not the best. It has a 20 % sham of the world market and has got units all over the world. As against it, the three appellants (we are treating <ORG> too on pair with <ORG> and <ORG> though as a fact it was not in the picture at the relevant time, as stated hereinebefore) were offering technology either of <ORG> or of <ORG> of Slovakia and <ORG> of <ORG> was of the opinion that both of them were not acceptable, - <ORG> for the reason that its technology was not yet proved at the commercial production level and <ORG> of Slovakia on the ground that its technology was no superior to the. technology presently employed by <ORG> Among the seven world leaders mentioned hereinbefore, both <ORG> and <ORG> of Slovakia are not to be found. Another Indian company,, <ORG> (not a writ petitioner or appellant before us) offered to obtain the technology of <ORG> (one of the seven world leaders) but it did not pursue its offer and failed to submit its proposals. This left only M.<ORG> in the field, as stated by the Sub-Committee. In other words, there was, unfortunately not much of a choice. In this connection, it must be emphasised that rejection of <ORG> and <ORG> of Slovakia technology was not by Sri <NAME>, but by <ORG> and that too not once but twice.

31. There is yet another fact. Most of these companies keep their processes and technology a guarded secret. More better the technology, more fervently it is guarded. And <ORG> needed a technology superior to the one it was already having. Not only it was producing only 55% of its installed capacity, its cost of production was far higher than what it ought to be. It is true, cost of production could have been reduced to some extent by rationalising and streamlining the working methods (as pointed out by the <ORG><ORG><ORG> in its report) but the more important need was to increase the yield from the strains and achieve full capacity production. On account of efforts made over the years, production had increased to some extent but it was still way behind its installed capac<ORG> ity, i.e., full capacity production. Thus, it was not a case of merely leasing out a <ORG> company but a case where the <ORG> company was trying to obtain the best possible technology. In such matters, sights have to be set far into the future and arrive at a reasonable prognosis keeping in mind the best interests of the company. Floating of tenders may not have been a proper method to adopt in these circumstances. In any event, among the available technologies, not only has the <ORG> the best technology, it was the only source available, the other having been rejected as already stated. Probably it is for this reason that the <ORG> of India gave the directive on 20th June, 1994. In the above circumstances and, on the present material, we cannot say that <NAME> was either actuated by malafides or that he was acting out of extraneous reasons.

32. Next question is whether there was no fair consideration of the offers made by the appellants. So far as <ORG> is concerned, even when it was putting forward its proposals, it was in the process of setting up a plant of its own for manufacture of <ORG> For that reason, it was perceived more as a competitor rather than as a probable partner. Secondly, its technology was as yet unproven at commercial production level, which meant that there was an element of risk involved in adopting that (<ORG>) technology. Rejection of its proposals by the <ORG> - and not by the Managing Director, <NAME>, as emphasised hercinbefore - cannot, therefore, be held to be either 'no consideration' or mechanical rejection. No malafides are attributed to the <ORG>. - In the circumstances, the complaint of not furnishing full information or not giving inspection of the <ORG> plant cannot be said to be motivated or arbitrary. We do not also think it necessary to refer to the correspondence that passed between <ORG> and <ORG> - to which our attention has been drawn by <NAME> - for the reason that rejection of proposals of <ORG> was not by <NAME> but by the <ORG> of Directors. The board proceedings referred to hereinbefore do establish that <ORG> was acting in its own independent judgment in these matters and was not being led away by the opinions of <NAME>. So far as <ORG> is concerned, it appears that it did not disclose the name of its foreign partner in the first instance; it did so only later. Moreover, the letter of <NAME> of Slovakia, (<ORG>'s. foreign partner) was found to be vague. Above all, the <ORG> of Directors of <ORG> were satisfied that the technology of <NAME> was no superior to the one being employed by <ORG> <NAME> of Slovakia is also not one of the world's seven leading manufacturers of <ORG>-G and, therefore, the <ORG> thought that there was no point in pursuing the proposals of <ORG> It cannot be said that it was not a fair decision nor can it be insisted that before rejecting the proposals of <ORG> and <ORG>, the <ORG> of Directors ought to have obtained technical opinion or the opinion of an expert committee. The representatives of these two companies were heard in person by the <ORG> and their presentation fully noted and considered. More cannot be insisted upon as a matter of law or in the facts of this case. Now coming to <ORG>, it entered the picture quite late. Its foreign partner is the very same <NAME> of Slovakia. (It needs to be stressed that each, of the appellants, as also <ORG>, were offering the technology of their respective foreign partners and hence, the comparative merits of these foreign partners becomes relevant.) The complaint of not affording a proper opportunity to put forward their proposal made by <ORG>, cannot, therefore, be entertained. Similarly, the argument of Sri <NAME> and Sri <NAME> that the terms stipulated by <ORG> should have been put to the appellants and their response ascertained before finalising the deal, is beside the point in the circumstances aforestated.

33. ' We may also point out that one other Indian company, <ORG>, (not an appellant before us) offered in the first instance to bring in the technology of <ORG> - one of the seven leaders in the field - but it did not pursue its offer. It did not submit its proposals within the time prescribed.

34. In the circumstances, the only grievance of the appellants is about the lower rental of Rs.17 crores being accepted in the MoU as against the minimum Rs. 31.68 crores stipulated by <ORG> of <ORG> Firstly, once the appellant's offers/proposals are found to have been re<ORG> jected rightly, they cannot be heard to complain of the amount of lease agreed between <ORG> and <ORG> Secondly, it appears that <ORG> was satisfied with Sri <NAME>'s presentation and agreed with him that stipulation of Rs.31.68 crores' rental was not feasible. in the cir<ORG> cumstances and that is why it gave the directive to him to enter into a MoU with <ORG> "at the earliest" for establishing the proposed joint venture. The opinion of Prof <NAME> must also have weighed with the <ORG> in deciding to go in for <ORG> with <ORG> participation. It should be remembered that <ORG> of <ORG> had also decided to have a technological collaboration with <ORG> It would have been a different matter if <ORG> had agreed with the recommendation of the <ORG><ORG>Com<ORG> mittee that there is tremendous scope of improving and achieving higher level of efficiency and cost reduction in the operations of <ORG> itself with the existing tech<ORG> nology and without obtaining any foreign technology and that the <ORG> should first try that course. On the other hand, the Board decided in its meeting held on April 28, 1994 that <ORG> should go in for technological collaboration with <ORG> in the form of a <ORG> Yet another fact is that negotiations with <ORG> were held on June 20, 1994 not by Sri A.K.<NAME> alone but a <ORG> of three members of whom one appears to have been a member of the <ORG><ORG><ORG> as well.

35. We must reiterate that this was not a simple case of granting of lease of a <ORG> company, in which case the court would have been justified in insisting upon the authorities following a fair method consistent with Article 14 , i.e., by calling for tenders. We agree that while selling public property or granting its lease, the normal method is auction or calling for tenders so that all intending purchas- ers/lessees should have an equal opportunity of submitting their bids/tenders. Even there, there may be exceptional situations where adopting such a course may not be insisted upon. Be that as it may, the case here is altogether different. <ORG> was trying to improve not only the quantum of production but also its quality and for that purpose looking for an appropriate partner. They went in for the best. It must be remembered that this technology is not there for the mere asking of it. All the leading drug companies keep their processes and technology a guarded secret. Being businessmen, they like to derive maximum profit for themselves. It is ultimately a matter of bargain. In such cases, all that need be ensured is that the <ORG> or the authority, as the case may be, has acted fairly and has arrived at the best available arrangement in the circumstances.

36. It is then submitted that when <ORG> had asked the Managing Director not to agree for a lease amount of less than Rs.31.68 crores and to report back to the <ORG> the lease amount which <ORG> is prepared to pay, the Managing Director should have reported back to the <ORG> instead of entering into a MoU for a lesser amount. It is submitted that the Managing Director was bound to and ought to have carried out the instructions of the <ORG>. The Managing Director was trying to over-reach <ORG> by several means, one of which was his letter dated May 3, 1994, it is submitted. In reply to this, it is pointed out by the learned counsel for the respondents that Sri <NAME> did write to <ORG> on May 10, 1994 as directed by the <ORG> but that the <ORG> did not agree to the figure stipulated by the <ORG> (vide <ORG> letter dated May 17, 1994) and that both these letters were placed before the <ORG>. Be that as it may, once the <ORG> directive was issued, all this controversy lost its relevance.

37. It is then argued that the power to give directives is vested by Article 117 in the President alone and that no such directive can be given by <ORG>. It is submitted that the Rules of Business framed by the President of India under Article 77 are relevant only in the case of executive power of the <ORG> and that Article II 7 of the Articles of Association of <ORG> is no part of the executive power of the <ORG>. Accordingly, it is submitted, the authentication of the said directive by the Deputy Secretary to <ORG> is equally incompetent.Now, the directive in this case is issued by <ORG>. The letter says that it was being issued with the approval of the Minister for Chemicals and Fertilizers. 'Mere is indeed no reference to the President at all. The question, however, is whether the President in Article 1 17 of the Articles of Association of <ORG> means and refers only to the President of India and whether it is a power to be exercised by the President personally? We do not think that it would be reasonable to construe Article 117 as suggested by the appellants. The President of India like the Queen of England is a Constitu- tional Head. [ <CITATION> (1995 5 (2) S.C.R.225) and <CITATION> (1975 (1) S.C.R.814)] <ORG> is a <ORG> company. It was really an agency, an instrumentality of <ORG> though given a corporate shape. Article 117 is one form of control the government has over these corporate bodies. In the circumstances, it would be reasonable to understand the expression "President" in Article 117 as referring to <ORG>. To say that this power should be exercised by the President himself is neither practicable nor consistent with the dignity of the President. Of course, while the directive must be expressed in the name of the President but that is ultimately a matter of form, and the form has been held to be mandatory. In this view of the matter, it is unnecessary to consider whether it is open to the appellants to raise this contention. We are, therefore, unable to say that the directive issued is not valid in law or that it was not issued by the competent authority. It is not disputed that the directive is binding upon <ORG> and all its authorities. If so, the corporate identity or corporate existence of <ORG> is in no way violated by the directive given. It cannot also be stipulated that before giving the directive, the appellants should have been heard. Not only giving of directive was an internal matter between <ORG> and <ORG>, there was no point in giving notice to <ORG> and <ORG> whose offers were already rejected by the <ORG> once and again after re-evaluation directed by the <ORG>.

38. Lastly, it is argued that in the case of <ORG>, the Minister of <ORG> had asked the <ORG> to evaluate its proposal on June 15, 1994 and that without any reference to the said order, the MoU was entered into on June 20, 1994. It is, however, explained by the respondents that the said order of the Minister of <ORG> was revised by the Minister for Chemicals and Fertilizers even before the issuance of the directive. Moreover, <ORG> having entered the picture very late cannot complain of lack of fuller consideration. It is equally evident that since it was already in the process of selling up its own plant and also because its technology too was that of <ORG> of Slovakia, which was already rejected in the case of <ORG>, no useful purpose would be served even by asking a reconsideration of its proposals.

39. Before parting with this matter, we must say that <ORG> entered into with <ORG> is subject to the final approval of <ORG>, as expressly provided in the directive dated 20th June, 1994. We are sure that the <ORG> would examine all the terms of <ORG> carefully before according its approval. It is obvious that it is always open to the <ORG> to seek such modification of the terms of <ORG> as it thinks appropriate and as are feasible. But if it approves the <ORG> in the present form or in the modified form as the case may be, it is but in the interest of all concerned that the project is given a concrete shape without any further loss of time.

40. For the above reasons, the appeals fail and are dismissed. No costs.


REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2092 OF 2006 Commissioner of Income Tax ....Appellant Central, Kanpur Versus J.K. Charitable Trust ....Respondent Kamal Tower, Kanpur With CIVIL APPEAL NO. 1698 OF 2008 With CIVIL APPEAL NO. 1699 OF 2008 With CIVIL APPEAL NO. 2423 OF 2006 With CIVIL APPEAL NO. 682 OF 2007 1 JUDGMENT Dr. ARIJIT PASAYAT, J.

1. Challenge in these appeals in each case is to the order passed by a Division Bench of <ORG> answering the reference made by <ORG>, Allahabad Bench (in short the `<ORG>') under Section 256(1) of the Income Tax Act, 1961 (in short the `Act') in favour of the assessee and against the revenue. For answering the references in favour of the assessee <ORG> relied upon its judgment for two previous assessment years i.e. 1972-73 and 1973-74 in the assessee's case which is reported in <C<ORG>ION> (1992 (196) IIR 31). The present dispute relates to several assessment years, i.e. 1972-73 (in respect of an assessment re done under Section 147(1) of the Act) and assessment years 1975-76 to 1982-83.

2. Learned counsel for the revenue appellant submitted that each assessment year is a separate assessment unit and the factual scenario has to be seen. Dispute relates to the question whether the respondent, assessee's trust was hit by the provisions of Section 13(1)(c) and 13(2)(a)(f) & (h) of the Act and therefore cannot be given the benefit of exemption provided under Section 11 of the Act.

3. Learned counsel for the assessee submitted that for several years no appeal has been filed even though the factual position is the same i.e. for the assessment years 1983-84 upto assessment year 2007-08. Even no appeal was filed against the decision reported in [1992(196) ITR 31] (supra). It is also pointed out that several other <ORG> have taken a similar view and no appeal was preferred by the revenue against any of the judgments of the different <ORG>. Reference is made to the decisions reported in <CITATION> [(1982) 133 ITR 494], <CITATION> [(1983) 139 ITR 913], <CITATION> .2 [1988 (172) ITR 698] and <CITATION> [1996 (226) ITR 394]. The first two judgments have been rendered by the Bombay and Calcutta <ORG> respectively while the other two decisions are of the Gujarat <ORG>.

4. Learned counsel for the revenue submitted that even though appeal has not been preferred in respect of some assessment years, that does not create a bar for the revenue filing an appeal for other assessment years. Reliance is placed on a decision of this Court in <CITATION> [(2008)304 ITR 61 (SC)].

5. The factual scenario is undisputed that for a large number of assessment years no appeal has been filed.

6. The basic question therefore is whether the revenue can be precluded from filing an appeal even though in respect of some other years involving identical dispute no appeal is filed.

7. For deciding the issue a few decisions of this <ORG> need to be noted.

8. <CITATION> (2006 (3) SCC 1) it was noted as follows:

"The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction.

A decision can be set aside in the same lis on a prayer for review or an application for recall or under Article 32 in the peculiar circumstances mentioned in <CITATION> (2002 (4) SCC 388). As we have said, overruling of a decision takes place in a subsequent lis where the precedential value of the decision is called in question. No one can dispute that in our judicial system it is open to a court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in <CITATION> (2003(3) SCC 239) related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by <ORG> are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of <ORG> is therefore rejected."

9. <CITATION> (1995(4) SCC 683) the position was highlighted by this court as follows:

"We are unable to appreciate the objection raised against the prosecution of this appeal by the appellant or other SLPs filed in similar matters. Sometimes, as it was stated on behalf of the <ORG>, the <ORG> Government may not choose to file appeals against certain judgments of <ORG> rendered in writ petitions when they are considered as stray cases and not worthwhile invoking the discretionary jurisdiction of this <ORG> under Article 136 of the Constitution, for seeking redressal therefor. At other times, it is also possible for the <ORG>, not to file appeals before this <ORG> in some matters on account of improper advice or negligence or improper conduct of officers concerned. It is further possible, that even where SLPs are filed by the <ORG> against judgments of <ORG>, such SLPs may not be entertained by this <ORG> in exercise of its discretionary jurisdiction under Article 136 of the Constitution either because they are considered as individual cases or because they are considered as cases not involving stakes which may adversely affect the interest of the <ORG>. Therefore, the circumstance of the non-filing of the appeals by the <ORG> in some similar matters or the rejection of some SLPs in limine by this <ORG> in some other similar matters by itself, in our view, cannot be held as a bar against the <ORG> in filing an SLP or SLPs in other similar matters where it is considered on behalf of the <ORG> that non- filing of such SLP or SLPs and pursuing them is likely to seriously jeopardise the interest of the <ORG> or public interest."

10. <CITATION> [2004(1)SCC 347] reference was made to the judgments in Digambar's case (supra) and <CITATION> (1996(3) SCC 493). It was noted as follows:

"28. In the aforementioned situation, <ORG> of <ORG> manifestly erred in refusing to consider the contentions of the appellants on their own merit, particularly, when the question as regards difference in the grant of scale of pay on the ground of different educational qualification stands concluded by a judgment of this Court in <CITATION> {(1991) Supp(1) SCC 138]. If the judgment of <NAME> case (supra) is to be followed, a finding of fact was required to be arrived at that they are similarly situated to the case of <NAME> (supra) which in turn would mean that they are also holders of diploma in Engineering. They admittedly being not, the contention of the appellants could not be rejected. Non-filing of an appeal, in any event, would not be a ground for refusing to consider a matter on its own merits. ( <CITATION> )

29. <CITATION> (1996) 3 SCC

493) wherein this <ORG> noticed <NAME> case (supra) by holding: (SCC p. 494, para 4) "4. <NAME>, the learned counsel for the appellants, contended that though an appeal against the earlier order of <ORG> has not been filed, since larger public interest is involved in the interpretation given by <ORG> following its earlier judgment, the matter requires consideration by this <ORG>. We find force in this contention. In the similar circumstances, this <ORG> in <NAME>'s case (supra) and in <NAME> case (supra) had held that though an appeal was not filed against an earlier order, when public interest is involved in interpretation of law, the <ORG> is entitled to go into the question."

11. In <NAME>'s case (supra) reference was made to <NAME> case (supra) wherein it was observed at paragraph 5 as follows:

"It is then contended that Section 3(2) and (3) make distinction between the employees covered by those provisions and the employees of the aided schools taken over under Section 3(2) . Until the taking over by operation of Section 3(4) recommendation is complete, they do not become the employees of the <ORG> under Section 4 of the Act. The <ORG> in exercise of the power under Section 8 constituted a committee and directed to enquire and recommend the feasibility to take over the schools. On the recommendation made by them, the <ORG> have taken decision on 13-1-1981 by which date the respondents were not duly appointed as the employees of the taken over institution. Therefore, <ORG> cannot issue a mandamus directing the <ORG> to act in violation of law."

12. <CITATION> (2006(2)SCC

439) at paragraph 24 the position was reiterated.

13. <CITATION> [] it was observed that equity is not a relevant factor for the purpose of interpretation.

14. It will be relevant to note that in <CITATION> [(2000)243 ITR 143 ( <CITATION> [(2001) 249 ITR 219] this Court observed that without a just cause the <ORG> cannot file the appeal in one case while deciding not to file an appeal in another case. This position was also noted in <CITATION> [(2004)9 SCC 420].

15. In <NAME> case (supra) this Court held that where different <ORG> have taken different views and some of the <ORG> have decided in favour of the revenue, same is a just cause for the revenue to prefer an appeal.

16. If the assessee takes the stand that the <ORG> acted mala fide in not preferring appeal in one case and filing the appeal in other case, it has to establish malafides. As a matter of fact, as rightly contended by the learned counsel for the revenue, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer appeal where the revenue involved is below a certain amount. Similarly, where the effect of the decision is revenue neutral there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure.

17. In <NAME> case (supra) it was held that merely because in some cases revenue has not preferred an appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher court when divergent views are expressed by the different <ORG>. In this case, it is accepted by the learned counsel for the appellant-revenue that the fact situation in all the assessment years is same. According to him, if the fact situation changes then the revenue can certainly prefer an appeal notwithstanding the fact that for some years no appeal was preferred. This question is of academic interest in the present appeals as undisputedly the fact situation is the same.

18. The appeals are without merit and are accordingly dismissed. No costs.

........................................J. (Dr. ARIJIT PASAYAT) ........................................J. (C.K. THAKKER) ..........................................<NAME>) New Delhi;

November 7, 2008


JUDGMENT <NAME> <NAME>

1. This is an appeal by the Plaintiffs against the judgment of my learned brother Mr. Justice <NAME>.

2. The learned Judge disposed of several of the Defendants' contentions in favour of the plaintiffs, but he decided that the clause in the contract " <ORG> " was a condition and inasmuch as it had not been performed, he dismissed the Plaintiffs' suits.

3. The material facts are as follows:-The Defendants carried on business in Calcutta, the Plaintiffs in New York and Messrs. <NAME> & Co., in Chicago. The Defendants placed an order with the Plaintiffs through their agent in Calcutta. Messrs. <NAME> and <NAME>.

4. The order is as follows:

Please ship the following goods on our account and risk drawing on us against the invoice amount at 60 days' sight: documents on payment. We agree to accept and pay your draft on or before maturity interest as usual. <ORG> 2½.' "Ship to 58/1, Canning Street, Calcutta, Invoice to Messrs. <NAME> & Co.

"Draw on Messrs. <NAME> & Co.

"Through any Bank.

"Shipment soonest.

" Insurance at 10 per cent over invoice amount W.P.A., with risk of Pilferage and Breakage, War risk extra.

" All orders subject to confirmation by New York shippers.

" Two copies of documents to <ORG>.

5. There is a clause on the face of the document as follows:-"This order is given Subject to war conditions and to such regulations governing purchase and shipment as may be established by the United States or other Governments, and you are free of responsibility if unable to export the goods.

6. Then the documents proceed as follows:-"Messrs. A Stein & Co., 1143 W. Congress Street, Chicago I11. 100 gross Paris Garters Style No. 1500.

"10 gross Dandy Pad Garters with Satin pad. Assorted colours but white to be omitted. File at manufacturers' best prevailing prices. <ORG>.

7. The plaintiffs acknowledged the order by a letter, dated the 12th December 1919 addressed to the Defendants as follows:

Dear Sirs, " We thank you for this indent and give herewith copy of our order as placed with the manufacturers for acceptance. If there is any delay in shipping we will promptly advise you.

" Manufacturers acknowledge under date of December 20th, for shipment from five to six months at price of 37 dollars 20 cents per gross Paris.

" 100 gross Paris Garters 1500."

" This confirms <ORG> (<ORG>, Calcutta, Cable order."

" Note-We are not to be liable for loss or damage resulting from any delay or failure to deliver the goods ordered, caused by any action of the supplier, or by delay in transportation, strikes car-shortage, freight blockages, accidents, transfers by <ORG> roads or steamship Companies or other conditions over which we have no control.

8. And the document contains a copy of the order as follows for consignee from Messrs. <NAME> & Co.

Ship to Messrs. <NAME> & Co., addressed 58-61, Canning Street, Calcutta, India.

" Indent No. Cable 37, dated 9th December 1919.

" Manufacturers Deliver F.O.B. New York.

" Ship via direct steamer.

9. The goods were ready and packed for shipment on the 23rd June 1920. There was at that time much difficulty in getting the goods in New York. There appears to have been great congestion of goods for export at New York and <ORG> would not accept deliveries of goods for conveyance to New York.

10. Messrs. <ORG>, were complaining to the Plaintiffs of the congestion in their shipping department and explaining that they could not hold up orders indefinitely awaiting shipping instructions.

11. The Plaintiffs gave instructions to Messrs. <NAME> & Co. to ship via Montreal and <ORG>. These instructions were received by Messrs. <NAME> & Co. on the 17th of July 1920, and the goods were handed to the <ORG> on the 21st of July 1920.

12. Payment for the goods was made by the Plaintiffs to Messrs. <NAME> & Co. on the 14th and 17th of August 1920. The goods were shipped at Montreal on 20th September 1920. In due course they arrived in Calcutta and the Plaintiffs or their agents presented a draft to the Defendants.

13. The Defendants refused to accept the draft or the goods. The Plaintiffs sold the goods, and, as the market price had fallen, the result was a loss of Rs. 8,063.

14. This sum the Plaintiffs claimed in the suit, alleging that the Defendants were bound to identify the Plaintiffs against the loss, which they had incurred. The Plaintiffs in the alternative based their case on a breach of the contract and claimed the said sum as the difference between the contract price and the market price. Several defences were raised but, as already stated, the one, which succeed-ed, was that the clause "F.O.B. New York" was a condition of the contract that it had not been performed and that the defendants were entitled to refuse to accept the draft and the goods.

15. This was the only point argued in <ORG>.

16. The first ground, on which the learned Counsel for the Plaintiffs relied, was that there was no express direction to the Plaintiffs to ship from New York. The argument was that the phrase "F.O.B. New York" referred to the price only; that the plaintiffs had to obtain the best; prevailing price, which was to be an inclusive price F.O.B. New York, and that the Plaintiffs carried out the Defendants' instructions in this respect.

17. I am unable to accept this argument. It is contrary to the natural meaning of the clauses in the document, which contained the defendants' instructions and which has been called the " indent."

18. The instructions were to ship the goods on account of the Defendants and at their risk.

19. The phrase " F.O.B. New York " is the only direction as to the place or mode of shipment.

20. The phrase follows immediately after the clause " Fill at Manufacturers ' best prevailing prices," but "F.O.B. New York" is printed in a separate line and as a separate sentence.

21. In my judgment the indent did contain express instructions to thip at New York.

22. The second point urged by the learned Counsel for the Plaintiffs was that there was a doubt as to the meaning of the instructions contained in the " indent," that the instructions were susceptible of two different meanings, that the Plaintiffs had bona fide adopted one of them and had acted upon it, and consequently the Defendants could not repudiate the Plaintiffs' act as unauthorised.

23. Reliance was placed upon the judgment of Lord <NAME> in <ORG> in Ireland v. <NAME>.

24. It was argued that the Plaintiffs were directed to ship the goods "soonest." which means as soon as possible, and that as they could not ship them at New York without great delay, the Plaintiffs were entitled to ship the goods at Montreal with a view to exporting the goods as soon as possible.

25. Again I. am unable to accept this argument. In my judgment the clause "F.O.B. New York" contains the directions as to shipment, and the instructions were that the Plaintiffs were to ship the goods as soon as possible at New York. In my opinion the language used in the indent is not susceptible of the meaning which the Plaintiffs seek to place upon it.

26. The third point urged by the learned Counsel for the Plaintiffs was that as the Plaintiffs were prevented from shipping at New York by the congestion at New York and the embargo placed by <ORG> on consignments from Chicago to New York, the Plaintiffs were bound to do the best they could and ship the goods as soon as possible at another port: and that they adopted the best possible course by arranging for the goods to be sent via Montreal.

27. It was argued that an emergency had arisen within the meaning of Section 189 of the Indian Contract Act, and that the Plaintiffs had authority to ship the goods at Montreal, as it was an act which a man of ordinary prudence would have done in his own case under similar circumstances.

28. This argument cannot succeed; for in my opinion, it cannot reasonably be said that such an emergency had arisen as authorised the Plaintiffs to act contrary to the express instructions of the Defendants.

29. It was not suggested that the Plaintiffs were unable to communicate with the Defendants and obtain their instructions as to the course to be adopted in view of the difficulty which had arisen with regard to the shipment of the goods at New York. The Plaintiffs had agents in Calcutta: there was nothing to prevent the Plaintiffs cabling or communicating otherwise with their agents or with the Defendants and obtaining the instructions of the Defendants.

30. It was not as if a sudden emergency bad arisen, the evidence shows that the congesation at New York extended over some months and it must have been well-known to the Plaintiffs that there would be a difficulty in shipping at New York when the consignment was ready.

31. Even when the consignment was ready for shipment and when Messrs. <NAME> & Co. were asking for shipping instructions, the Plaintiffs could have communicated with the Defendants and obtained their instructions.

32. In my judgment it was obviously the duty of the Plaintiffs, having regard to the difficulty as to the shipment at New York,] to communicate either directly, or through their agents in Calcutta, with the Defendants and obtain their instructions.

33. This they did not do, but they acted without instructions and thereby took the risk of the goods being rejected by the Defendants.

34. The fourth point urged on behalf of the Plaintiffs was, in my opinion, the most important one.

35. It was argued that the contract was one between principals and agents, that the clause "F.O.B. New York," was not a condition which went to the root of the contract, that the Plaintiffs bad substantially carried out the instructions contained in the indent, and that the failure to ship the goods at New York was merely a breach of the contract which sounded in damages and did not entitle the Defendants to refuse to accept the documents or the goods.

36. It was not disputed that if the contract were treated as a contract between the Plaintiff's as vendors and the Defendants as vendees, the breach of the provision to ship at New York would entitle the Defendants to reject the goods.

37. It was argued on behalf of the Defendants that the contract in this case was one between vendor and purchaser and reliance was placed upon the opinion of <ORG> in Ireland v. <NAME> (1871) L.R. 5 H.L. 395

38. The learned Judge pointed out that although the legal effect of the transaction between a commission merchant, such as the Plaintiffs, and the consignee who has given him the order, is a contract of sale passing the property from one to the other there was also a contract of agency between the parties.

39. This being the nature of the contract, the question which arises is whether the parties intended that shipment at New York should be a condition precedent to the Defendants' liability under the contract to indemnify the Plaintiffs, or whether it was a stipulation, the breach of which would merely give rise to a claim for damages or compensation for any loss sustained by the Defendants by reason of such breach.

40. The contract was a mercantile contract and it must be assumed that the parties, being mercantile men, did not insert the stipulation as to shipment at New York, unless some value or importance was attached thereto, and having regard to the nature of the contract and the specific instructions contained therein that the shipment was to be at New York, in my judgment this stipulation must be regarded as one which went to the root of the contract and which must be performed before the plaintiffs could claim indemnity from the Defendants.

41. No information was forthcoming as to whether the shipment at Montreal instead of at New York would have involved the Defendants in the payment of a higher freight or a higher rate of insurance, if they had accepted the goods.

42. But in my judgment it would not be right for the Court to reject the Defendants' contention by reason of the absence of such evidence: in my opinion it is immaterial to enquire into such a question when once the conclusion is arrived at that the stipulation that the shipment should be at New York was of the essence of the contract and was one which the Plaintiffs were bound to perform before they could claim indemnity from the Defendants.

43. No doubt the employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in the exercise of the authority conferred upon him.

44. As I have come to the conclusion that the shipment of the goods at Montreal instead of at New York was not in the exercise of any authority conferred upon the Plaintiffs by the Defendants, and, as the stipulation as to the shipment was in my opinion of the essence of the contract, it follows that the Plaintiffs were not entitled to be indemnified by the Defendants. The Plaintiffs' claim for damages based upon the difference between the contract price and the market price fails for the same reasons.

45. The result, therefore, is that this appeal must be dismissed with costs.

<NAME>, J.

46. I agree. I think that the stipulation " F.O.B. New York " was an essential part of the order. It has been contended before us that even if that be and even if there be no sufficient excuse on the part of the agent for varying the port of shipment, nevertheless the agent has part performed the duties which he undertook by the contract of agency and, therefore, the stipulation as to port of shipment cannot be regarded as something which disentitles him altogether to his indemnity, but must be regarded as something which at the worst entitles the principal to make some deduction corresponding to the amount of damage which he has suffered. I desire to point out that as I read the case of Ireland v. <NAME> (1871) L.R. 5 H.L. 395 it is a conclusive authority against such a contention. The contract there as here had to be regarded, particularly in its early stages, as a contract of agency. The contract in that case was ambiguous and much difference of opinion took place as to whether the instructions required that there should be not less than 450 tons, that there should be one ship, one port and one bulk. On that question the learned Judges differed, but I do not understand that any learned Judge took the view that if the Defendants' view was right as to the meaning of his order he could possibly be held bound to accept a cargo by two ships if he had really stipulated for one, to accept a cargo of less than 450 tons if he had really stipulated in such a way as to require 450 tons in any event, or if there was any other material discrepancy between the order and the performance in an essential particular. It appears to me that these contracts have to be looked at not merely as contracts involving the general principle of indemnity but as contracts with respect to which there is a particular arrangement between the parties as to the time when and the conditions upon which the agent shall get both his indemnity and his commission. I cannot help feeling that men of business would never employ the services of a commission merchant abroad if they were told that so long as the commission merchant did his best for them, they were obliged to take goods even if they were contrary to the conditions of the contract. For those reasons it does not seem to me that the result in this case is different, even when the agency feature of the contract is considered, from what it would have been if it had been a mere contract of sale between the parties.

47. I agree, therefore, that the appeal should fail.


JUDGMENT <NAME>, J.

1. By this order, the application filed by the respondent-company on December 8, 1993, under Rule 9 of the Companies (Court) Rules, 1959, read with Section 151 of the Civil Procedure Code, and Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, is being disposed of.

2. An application filed by the respondent-company for dismissal of the company petition on the ground that an enquiry under Section 16 of, the Sick Industrial Companies (Special Provisions) Act , 1985 (for short "the Act"), was pending had been dismissed by the court on October 14, 1993, and a special appeal filed against that order is pending consideration before <ORG>.

3. In this application filed on December 8, 1993, a prayer has been made for dismissal of the petition filed for liquidation on the ground that after October 14, 1993, a number of developments have taken place and they show that enquiry under Section 16 of the Act has been initiated and is pending.

4. <NAME>, senior advocate, appearing for the respondent-company, has invited the court's attention to the fact that the board of directors of the respondent-company had in their meeting held on July 29, 1993, resolved to make a reference under Section 15(1) of the Act to <ORG> (for short "the <ORG>"). The company made a reference to the <ORG> in Form No. "AA". On October 5, 1993, a copy of the reference was delivered in the office of the <ORG>. On October 28, 1993, the reference made by the board of directors of the company has been registered as Case No. 509 of 1993. After scrutiny of the reference had been made, the company was required to furnish certain informations. These informations have been submitted by the respondent-company, vide letter dated November 10, 1993. Thereafter, the case has been assigned to Bench No. 1 of the <ORG> and the <ORG> has decided to issue notice to 12 persons/institutes, whose names have been given out in the enclosure to the notice, which has been issued by the Registrar of the <ORG> on November 30, 1993. <NAME> submitted that enquiry must be deemed to have been initiated immediately on the making of the reference application by the respondent-company and in any case the enquiry must be deemed to be pending as soon as the <ORG> has taken cognizance of the reference application after the same was scrutinised by the Registrar of the <ORG>. <NAME> argued that in view of the non-obstante clause contained in Section 22(1) , the statutory bar against taking further proceedings under the Companies Act , 1956, operates and as such the petition filed by the petitioner under sections 433 and 439 of the Companies Act should be dismissed. <NAME> has also relied on a Bill which according to him has been introduced in <ORG> for amendment of the Act. <NAME> invited the court's attention to some amendments introduced with reference to Section 16(3) of the Act and submitted that this Bill is also indicative of the intention of the <ORG> that as soon as an application is submitted by the board of directors of the company under Section 15 of the Act, the enquiry must be deemed to have commenced and must be deemed to be pending for the purposes of Section 22(1) . <NAME>, learned counsel for the petitioner, has strenuously argued that the application dated December 8, 1993, filed by the respondent-company is frivolous and vexatious and it has been filed with the sole object to delay the hearing of the petition on the merits. <NAME> argued that having failed to persuade <ORG> to stay the order dated October 14, 1993, passed by the company court, the respondent-company has moved this application even though there has been no material change in the fact situation. <NAME> argued that the findings recorded by the court in its order dated October 14, 1993, must be treated as res judicata and, therefore, there is no need for fresh examination of the case. <NAME> also argued that the notice annexure 3 filed with the application dated November 30, 1993, has been issued by the Registrar of the <ORG> and there has been no application of mind by the <ORG> itself. He submitted that till the matter is considered by the <ORG>, enquiry cannot be treated as having been initiated. In regard to the Bill on which reliance has been placed by <NAME>, <NAME> argued that till the Bill is passed by <ORG>, it cannot be treated as a piece of legislation and no reliance can be placed on such Bill for the purposes of interpretation of the statutory provision contained in Section 16 and Section 22 of the Act.

5. I have given my thoughtful consideration to the rival submissions. While deciding the application filed by the respondent-company on an earlier occasion for dismissal of the company petition, 1 had analysed the provisions of Sections 15 , 16 , 17 as well as 22 of the Act and observed :

" Section 22(1) of the Act no doubt uses a non-obstante clause and in terms of that provision, no proceeding for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further except with the consent of the <ORG> or of the appellate authority, as the case may be. However, before application of Section 22(1) is attracted, there must be an enquiry under Section 16 pending or any scheme referred to under Section 17 under preparation or consideration or a sanctioned scheme under implementation or an appeal under Section 25 relating to an industrial company pending. Thus, till any of the three eventualities are the provisions of Section 22(1) cannot be attracted. Logically, the proceedings pending against a company under the provisions of the Companies Act , 1956, or any other proceeding pending against the company or its properties under any other law of the land, cannot be stayed or frozen. The crucial words which call for interpretation in this case are 'an enquiry under Section 16 is pending'. As I have already noticed, Section 15 of the Act of 1985, deals with reference, Sections 16 and 17 deal with enquiry and Section 18 deals with scheme. It is, therefore, clear that the <ORG> has deliberately made different provisions for making a reference by the board of directors of the company, determination of the question regarding sickness of the company by the board which may be done either on the basis of the reference or on the basis of any other information which the <ORG> for Industrial and Financial Reconstruction may receive. When the <ORG> has deliberately used different provisions, it is not possible to hold that the enquiry envisaged under Section 16 must be deemed to have commenced as soon as a reference under Section 15 is filed by the board of directors of the company. Clearly the <ORG> had intended that it will be the <ORG> for Industrial and Financial Reconstruction which shall apply its mind to the question as to whether and when enquiry should have commenced for determining whether the company has become a sick company or not. A stage prior to a decision by the <ORG> to initiate an enquiry, cannot be equated with commencement of the enquiry envisaged under Section 16(1) and an enquiry can be treated as pending only after it has commenced and not prior to that."

6. If in the light of the above quoted observations the present day position of the reference made by the respondent-company to the <ORG> is examined, it is clearly revealed that after October 14, 1993, the reference has been registered by the Registrar of the <ORG>. Case number has been given to the respondent-company as 509 of 1993. Defects pointed out by the Registrar of the <ORG> have been rectified by the company and then a notice dated November 30, 1993, has been issued by the <ORG>. Anncxure 3 clearly shows that although the notice has been signed by the Registrar, he has done so under the instruction of the <ORG>. The use of the expression "By order of the <ORG>", is clearly indicative of the fact that notice has in fact been issued as per the order passed by the <ORG>. It is, therefore, clear that the <ORG> for Industrial and Financial Reconstruction has applied its mind and has taken a decision to call upon the affected parties to make their submissions before any decision is taken on the reference made by the respondent-company. The petitioner, <ORG>, is one of the parties to whom notices have been ordered to be issued by the <ORG>. It is, therefore, clear that the <ORG> for Industrial and Financial Reconstruction has taken cognizance of the reference made by the company and has initiated the proceedings. With the issue of notice dated November 30, 1993, it has to be considered that the enquiry, as envisaged under Section 22(1) , is pending.

7. Once the enquiry under Section 16 is treated to be pending, the provisions of Section 22 of the Act are attracted and the company court cannot proceed further with the matter.

8. The argument of <NAME> that the company petition should be dismissed, cannot be accepted. I need not make an elaborate discussion on the subject in view of the order dated September 9, 1993, passed by me in Company Petition No. 6 of 1991-- <CITATION> .  81 Comp Cas 50. In that case, I have considered the entire matter at length and have not found merit in the submission made that the company petition is liable to be dismissed as soon as the provisions of Section 22 are attracted. It has been held in the said case that the proceedings under the Companies Act or such like statutes are to be frozen till the matter is finally decided by the <ORG> or by <ORG>, as the case may be.

9. In view of the above, the application filed by the respondent-company is allowed and it is ordered that the proceedings of Company Petition No. 8 of 1993, shall remain in abeyance till <ORG> decides the reference made by the respondent-company under Section 15(1) of the Act.