Full Judgment Text
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PETITIONER:
G.D. ZALANI 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. Hindustan Antibiotics Limited (H.A.L.) 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. H.A.L.
is a Government company fully owned by the Government of
India. There is another government company, I.D.P.L., pro-
ducing the same drug. We arc told that at present there is
only one unit in private sector, Alembic, 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. H.A.L.M., 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 Since the said technology became outdated, it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 Pellety Strains from Panlabs Inc.,
U.S.A. Even so, the production could not exceed 55% of the
installed capacity. For all these reasons, H.A.L. has been
trying to devise ways and means to improve the production,
quality and yield.
4. Gist Brocades of Holland (hereinafter referred to as
’G.B.’) is the leading producer of Penn-G 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 Government of India publication
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"Technology in Indian Pencillin-G/V Industry" - a status
report prepared under the national register of foreign
collaboration (published in April, 1991) - Panlabs have
developed strains capable of yielding above 60,000 units/ml
within a relatively short period. Antibioticos of Spain has
developed strains yielding 60,000 units/ml whereas G.B. 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 G.B.
seems to be ahead. The said publication also states that
most of the important information relating to Pencillin
technology is not published since the companies keep it a
closely guarded secret.
6.s a result of the negotiations between H.A.L. and Max-GE
(a company
424
formed by G.B. and Max India coming together), a Memorandum
of Understanding (MoU) was signed between H.A.L. and M.G.B.
on June 20, 1994. The appellants in these three appeals,
viz., Torrent Gujarat Biotec Limited, SPIC and P.B.G. had
also offered to collaborate with H.A.L. for the purpose of
improving the quality and yield of Penn-G 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
H.A.L. which entered into a MoU with M.G.B. on June 20,1992
as aforesaid. Soon thereafter, these three appellants filed
writ petitions in the Delhi High Court 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 H.A.L., their
offers were rejected mainly because of the bias on the part
of the Managing Director of H.A.L., Sri A.K.Basu. It is
alleged that Sri Basu was interested in having collaboration
only with M.G.B. 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 Basu to different
parties who approached for such cooperation. He did not
provide them the opportunity to inspect the plant of H.A.L.
nor did he provide them the relevant information to enable
them to formulate a specific offer. The malafides on the
part of Sri Basu, it is alleged, are responsible for the
impugned MoU whereunder the H.A.L. has agreed to lease out
its plant and all other facilities for an annual amount of
Rs. 17 crores to the proposed Joint Venture Company (J.V.C.)
to be formed by H.A.L. and M.G.B., whereas the appellants
were prepared to offer a lease amount far above the said
figure. The malafides on the part of Sri Basu is evident
from the fact that though the Board of Directors 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 H.A.L., 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 H.A.L. in arriving at the impugned MoU.
Indeed, the submission is that the Government/H.A.L. 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
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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 Tata Cellular v. Union
of India (1 994 J.T.(4) 532) and Sterling Computers Limited
v. M/s.M & N Publications Limited & Ors. (1993 (1)
S.C.C.445) as well as the decision of the Allahabad High
Court in Churk Cement Mazdoor Sangh & Ors. v. State of Uttar
Pradesh (A.I.R. 1992 All.88). The High Court, 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
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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 H.A.L. 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 Penn-G being placed on the O.G.L.
(Open General Licence) in which case the H.A.L. would have
been driven out of market because the cost of Penn-G
produced by it is double the price of imported Penn-G.
Hence the urgency. No foreign company was prepared to part
with technology except by way of J.V.C. 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. H.A.L., however, found that G.B. 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 H.A.L. Over the last several years, several Indian
companies including the H.A.L. have been trying to obtain
technology from G.B. but they failed. Only in the year
1993, did G.B. agree to the H.A.L’s. proposal for
collaboration but only through its Indian partner, viz.,
M.G.B. The foreign collaborators of some of the appellants
do not have technology comparable to G.’B. and none of them
have a
*The respondents to the writ petitions in High
Court and in these appeals are (1) Union of
India represented by the Secretary to Ministry
of Chemicals and Fertilizers, (2) H.A.L.(P)
Ltd., (3) Sri A.K.Basu, M.D. of H.A.L. and (4)
Max-G.B.
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 Brocades, Holland I 20.0
Biochcmie, Austria II 11.5
Antibioticos, Spain III 11.0
Beecham, UK. IV 8.5
Bristol Myers, UK. V 7.5
Synpac, UK. VI 6.0
Hoeschst, Germany VII 5.0
------------------------------------------------------------
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8. It is stated further by the respondents that while SPIC
offered the technology of Cipan, Torrent and P.B.G. offered
the technology of Biotica of Slovakia. The technologies
offered alongwith the facts relevant to each of these
appellants was considered and their offers rejected by the
Board of Directors of H.A.L. 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
M.G.B. and H.A.L. bears fruit. Because of their inferior
technology, they will not be in a position to compete with
the proposed J.V.C. and this is the real reason why they are
out to scuttle the MoU between H.A.L. and M.G.B. In
particular, it is stated that in the case of P.B.G. it did
426
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 Biotica 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 H.A.L in providing technical
knowhow subject to their inspection of H.A.L. facilities and
satisfactory terms being negotiated between them. So far as
SPIC 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, H.A.L. did
not wish to experiment with this new technology. So far as
Torrent is concerned, its tie-up is also with Biotica of
Slovakia, whose technology was found to be inferior than
G.B. It is stated further that notwithstanding such
rejection, their offers were reevaluated by H.A.L. at the
instance of Government of India. Even on such reevaluation,
it was found that the collaboration with G.B. is more in the
interest of HAL than collaboration with any of the
appellants or their foreign collaborators. The allegations
of bias and malafides attributed to Sri Basu 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 H.A.I..
10. In August, 1993, the Managing Director of the H.A.L.,
Sri A.K.Basu, sought permission of the Government to visit
Holland between August 30, 1993 and September 2, 1993 to
discuss and finalise a MoU (Memorandum of Understanding)
between H.A.L. and Max-GB with whose representative, H.A.L.
was having discussions. In this letter, the Managing Direc-
tor set out the broad outline of the proposed J.V.C. between
H.A.L. and M.G.B. While approving the visit, Government 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 the Board of Directors of H.A.L. 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 G.B. in
Holland. He explained the salient features of the draft MoU
proposed to be entered into with M.G.B. He stated that the
technology to be obtained from G.B. would be the best in the
world and that it is a lifetime opportunity for H.A.L. 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
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increased production and profitability with the induction of
the M.G.B. technology. He also explained why the offer of
Ranbaxy 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.G.B. and
H.A.L. 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
427
was asked to obtain extension of time by a month for signing
the proposed MoU with M.G.B.
12. At the meeting of the Board of Directors held on
October 10, 1993, the Managing Director explained in detail
the discussions the company officials had with
Hoescht/Ranbaxy 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 Board again on October
26, 1993. At this meeting, the Managing Director emphasised
the need for upgrading the Pencillin technology and
reiterated his opinion that technology of G.B. is the best
in the world and that H.A.L. should not forego the op-
portunity of obtaining its technology. He indicated the
high profits which H.A.L. would earn through such
collaboration. The Managing Director also informed the
Board about the discussions he had with the P.B.G. 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 H.A.L. by 27th
November, 1993. The Managing Director further submitted
that the offers of M.G.B. 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 Board.
Accordingly, the Board constituted a Sub-Committee
consisting of S/ Sri P.C.Rawal, N.Gopalan and Dr. P.K.Ghosh,
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 P.B.G.
had earlier informed that they would get in touch with
H.A.L. by 27th November, 1993 there was no response from
them. He stated that P.B.G. had no proven technology to
offer to H.A.L. At this meeting the Board noted that the
need for Pencillin 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
M.G.B., P.B.G. and Ranbaxy-Hoescht, another party, SPIC has
also expressed interest in offering Pencillin technology to
H.A.L. The Board noted that SPIC is setting up a Pencillin
plant with Cipan technology which is in no way superior to
the technology presently employed by H-A.L. It was
accordingly decided to reject the offer of SPIC. At this
meeting the Managing Director informed the Board that once
H.A.L. 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 H.A.L. from getting
the best technology. He also stressed the need for up-
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grading the present technology by H.A.L. and stated that
with G.B. technology the production of H.A.L. 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 P.B.G. on the ground that the
428
technology of Biotica of Slovakia offered by it was not
superior to the technology presently employed by H.A. L.
15. At the Board meeting held on February 4, 1994 the Board
was informed that the proposal of M.G.B. has been received.
The Board directed that these proposals be sent for
evaluation to the Sub-Committee appointed earlier.
16. At its meeting held on 28th March, 1994, the Board was
informed that SPIC and P.B.G. (whose proposals were rejected
by the Board) have represented to the Government of India
that they should be given a further opportunity of
explaining their proposals whereupon the Government has
directed the Board to give a further opportunity to the said
two companies. Accordingly, the representatives of these
two companies were heard by the Board which rejected both
the proposals again. The Board then heard the
representatives of M.G.B. about their proposals. The
representative of M.G.B. did not agree to having 49%
interest in the proposed Joint Venture Company (J.V.C.) and
insisted upon equal sharing, i.e., 50% each.
17. By the date of the next Board meeting on April 28,
1994, the report of the Sub-Committee (which was appointed
in the Board 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 SubCommittee at this
stage.
18. Pursuant to the directions of the Government, the Sub-
Committee 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 Government 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 HAL profitably;
(iii) In the event such a joint venture
proposal as proposed by HAL management
materialises, how best the interest of the
employees can be protected-, and
(iv) Pencillin plant of HAL is a profit
centre. Whether such a proposal for joint
venture would leave HAL with non- (profit
making centres?)"
19. The Subcommittee held several sittings at which it
heard a number of officials of H.A.L. and others. It found
inter alia that the cost of production of H.A.L. is higher
than I.D.P.L. which in the opinion of the Sub-Committee was
totally unwarranted. It was of the opinion that by
rationalising the cost of production and by carrying out
other measures, H.A.L. would be in a position to cam
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substantial profits by itself without any tie-up with the
foreign company. It also commented upon the failure of
H.A.L., which is the pioneer and the largest manufacturer in
the country, in not approaching the leading Pencillin
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 Sub-
429
Committee stated:
"59. As a result of the evaluation of the
HAL’s production efficiencies, the Sub--
Committee 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 HAL even
with the existing technology. It came as a
surprise to the SubCommittee that HAL which is
the largest pencillin producer in the country,
what to talk of comparing internationally,
does not compare favourable with IDPL
pencillin production operation insofar as raw
material land utility costs are concerned. A
draft on latest cost price study report for
the year 1994-97 on pencillin first crystals
production as prepared by BICP a copy of which
could be had by 2 1 st April, 1994 contain the
actuals for the ye= 1992-93. In respect of
raw materials costs per capital of pencilling
production, HAL has been Rs.334 which is Rs.73
higher than Rs.261 spent by IDPL. For the
utilities HAL spends Rs.259 which is Rs.69
higher Om Rs. 190 spent by the IDPL. Even if
HAL’s cost of raw materials and utilities in
the short term cannot be brought to the level
of IDPL, in the year 1995-96 when the
production of HAL is expected to be II 00 MMU
it should be possible for HAL to attain
improvements and cost reduction to achieve
profit of Rs.288 per Bu as examined above
which should give the profit of Rs.31.68
crores (at current sale price for Pen.G first
crystal at a production level of II 00 MMU for
HAL.)"
20. The Sub-Committee then noted the fact that, offers of
SPIC and P.B.G. have been rejected by the Board which
rejection was reiterated after re-hearing them pursuant to
Government directions.
21. The Sub-Committee also noted that since Ranbaxy has
failed to submit its proposal within the time specified the
only proposal left was that of M.G.B. After evaluating the
proposal of G.B. and its offer of Rs. 13 crores rental per
annum and after considering the potential of 14.A.L. and its
performance, the Sub-Committee expressed its opinion in the
following words:
"62. The Sub-Committee is of the opinion that
the proposal of leasing out pencillin
production facilities of HAL to JVC in which
both HAL and Max GB would have fifty per cad
equity each should be decided by the Board
keeping in view of the possibility of
increasing production and productivity of
pencillin operations in HAL without induction
of new technology but by making improvements
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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 NC
then the lease rental of the HAL’s production
facilities to be paid by the JVC should be
computed keeping in view the financial
parameters suggested by the Sub-Committee.
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 Sub-Committee the Board 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
430
by the Sub-Committee. 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 Board that the only available
option of acquisition of the technology
offered through the route of JVC as proposed
by Max-GB with HAL having 50% equity each in
the JVC be accepted but the lease rental
payable by the JVC to HAL 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 Max-GB and he felt that at best
Max-GB 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 Sub-Committee. However, the directors of
the Board except the MD agreed that lease
rental of Rs.31.68 crore as computed by the
SubCommittee 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 SubCommittee.
205.10.12.The Board 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 HAL on leased assets in the
Pencilli Plant and adjustment for the income
tax liability. (Reference - para 44 of the
SubCommittee’s report.)
The Board authorised the MD to compute the
lease rental as above and communicate to Max-
GB the lease rentals that would be acceptable
to HAL from the JVC and in due course inform
the Board of their acceptance."
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23.The Managing Director of H.A.L., Sri Basu who did not
agree with the Board Resolution aforesaid, addressed a
letter dated May 3, 1994 to the Secretary, Ministry of
Chemicals and Fertilisers. This is a very detailed letter
enclosing several work sheets. After setting out his
reasons in detail as to why the Board 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 H.A.L. and M.G.B. -
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 HAL in
particular and India at large in forming a
Joint Venture between HAL and MaxGB.
(c)Future fluctuations in the Pencillin
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, the Government of India obtained the
advice of Padmabhushan Prof M.M.Sharma, Direc-
431
tor and Head of the Department of Chemicals and Technology,
University of Bombay. Prof. Sharma is a fellow of the
Royal Society and also a fellow of the Indian Academy of
Sciences. The judgment of the High Court refers to the
substance of the opinion tendered by Prof Sharma.
Prof.Sharma is stated to have opined that the best
technology for Penn-G in the world was with G.B. and that it
was in the interest of H.A.L. as well as in the interest of
the country to acquire that technology. lie 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 J.V.C. and was of the opinion that
it was in the commercial interest of H.A.L. 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 Sri A.K.Basu, Managing
Director, H.A.L. It directs H.A.L. to enter into a MoU at
the earliest with the M.G.B. for establishing a J.V.C. 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
Hindustan Antibiotics Limited (HAL) and MAX-
GB. a joint venture company of Max India and
Gist-Brocades of Netherlands. for setting up
of a joint venture in the existing plant of
Hindustan Antibiotion Limited 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
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the Minister for Chemicals and Fertilisers to
issue the following directive to Hindustan
Antibiotics Limited in exercise of the power
under article 1 17 of the Memorandum and
Articles of Associations of Hindustan
Antibiotics Limited;
(i) Hindustan Antibiotics Limited may enter
into a Memorandum of Understanding (MoU) at
the earliest with MAX-GB for establishing the
proposed joint venture, subject to final
approval of the Central Government.
(ii)The lease rent to be paid to Hindustan
Antibiotics Limited by the Joint Venture
Company be negotiated immediately with MAX-GB
by a Committee comprising the Managing
Director, Hindustan Antibiotics Limited, the
Joint Secretary and Financial Advisor,
Ministry of Chemicals and Fertilisers, a part-
time official, Director on the Board of
Hindustan Antibiotics Limited and Shri Vinod
Vaish, Joint Secretary to the Government of
India in the Department of Chemicals and
PetroChemicals and the agreed amount be in-
corporated in the Memorandum of Understanding.
Yours faithfully
sd/-
(C.Lal
Dy. 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
M.G.B. and a MoU was signed on the same day stipulating an
annual rental of Rs. 17 crores. On behalf of H.A.L., only
the Managing Director , Sri Basu, signed witnessed by two
officials of the H.A.L.
26. At this stage, going back a little, it may be stated
that a Board meeting was
432
held on May 25, 1994. At this meeting, the Managing
Director brought to the notice of the Board the letter
written by him to the Secretary, Ministry of Chemicals and
Fertilizers. The Board took objection to certain statements
made in the said letter. The Board was also critical of Prof
Sharma’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 the Board of Directors at
its meeting held on September 6, 1994. The Board merely
"noted" the fact.
28. We are told that the Government of India has not yet
approved the MoU. The respondents’ counsel explained that
this was because of the pendency of the writ petition in the
High Court and these matters in this Court.
29. It would be noticed that there is no reference to
Torrent Gujarat Biotech Limited in any of the Board
Resolutions or in the Sub-Committee report. According to
Torrent, 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. Torrent says that
it addressed a letter on April 12, 1994 to the Government of
India expressing their interest in upgrading the technology
of H.A.L. and in improving the production by investing
Rs.40-50 crores. It is stated that their offer was rejected
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by H.A.L. on May 21, 1994 and that thereafter its
representatives met the Minister of State on June 3, 1994
and represented their case. On June 15, 1994, it is stated,
the Minister of State asked the Managing Director of H.A.L.
to consider Torrent’s proposal. Its grievance is that
without considering its case, the Managing Director entered
into MoU with M.G.B. on June 20, 1994 in an unseemly hurry.
30. It would be evident from the facts narrated above that
the Managing Director of H.A.L., Sri A.K.Basu was all out
for a technological tie-up with G.B. and with no other. To
start with, he sought the permission of the Government of
India to go to Holland in August/September, 1993 to discuss
and finalise the MoU with M.G.B. While permitting him to go
and have discussion there, the Government of India
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 the Board of Directors of H.A.L. held on
September 20, 1993, Sri Basu explained the advantages that
will accrue from a tie-up with M.G.B. According to him, it
was a lifetime opportunity for H.A.L. which it should not
forego. This was his theme throughout in all the Board
meetings. (Indeed, in one of the meetings, the Board of
Directors found fault with Sri Basu for entering into
negotiations with G.B./M.G.B. without its approval. It
appears obvious that Sri Basu had taken the permission of
only the Government of India for entering into negotiations
with G.B./M.G.B. and informed the Board only after his visit
to Holland.) Finally, when the Board of Directors decided on
April 28, 1994 that the lease amount payable by the proposed
J.V.C. (to be formed by H.A.L. and M.G.B. with 50 % share
holding each) should not be less than Rs.31.68 crores per
annum and instructed
433
him accordingly, Sri Basu wrote a letter directly to the
Secretary to the Government of India, Ministry of Chemicals
and Fertilizers setting out in detail why the Board
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 the Government of
India sought the opinion of an expert, Viz., Prof
M.M.Sharma. After receiving the opinion of Prof Sharma, the
Government of India gave the "directive" to H.A.L.,
addressed to Sri Basu on June 20, 1994, to enter into a
collaboration agreement with M.G.B. in the form of a
Joint Venture Company. For the said purpose, the Government
of India itself constituted a Committee of three members
including the Managing Director, Sri A.K.Basu. On that very
day, i.e., 20th June, 1994, negotiations were held and MoU
signed between H.A.L. and M.G.B. It does not appear that the
Board of Directors of H.A.L. was having any part in the
negotiations or in the matter of or entering into the MoU
with M.G.B. The MoU was signed by Sri Basu on behalf of the
H.A.L. 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.G.B. But it is not possible to say beyond this. It
is quite likely that Sri Basu was actuated by the best of
intentions, that he was of bona fide belief that entering
into a technological agreement with M.G.B. (which really
meant technical collaboration with G.B. of Holland) was a
lifetime opportunity for H.A.L. which it should not forego.
It could also be that he was genuinely satisfied that since
G.B. is the world leader and has the best technology, it can
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deliver goods far better than any other foreign company. It
is also possible that Sri Basu was for collaboration with
M.G.B. 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 H.A.L., he was acting in its best
interests. This presumption is not displaced in this case.
The fact remains that G.B. is the world leader in Penn-G
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 Torrent too on pair with SPIC and P.B.G. though as
a fact it was not in the picture at the relevant time, as
stated hereinebefore) were offering technology either of
Cipan or of Biotica of Slovakia and the Board of Directors
of H.A.L. was of the opinion that both of them were not
acceptable, - Cipan for the reason that its technology was
not yet proved at the commercial production level and
Biotica of Slovakia on the ground that its technology was
no superior to the. technology presently employed by H.A.L.
Among the seven world leaders mentioned hereinbefore, both
Cipan and Biotica of Slovakia are not to be found. Another
Indian company,, Ranbaxy (not a writ petitioner or appellant
before us) offered to obtain the technology of Hoescht (one
of the seven world leaders) but it did not pursue its offer
and failed to submit its proposals. This left only M.G.B.
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
Cipan and Biotica of Slovakia technology was not by Sri
Basu, but by the Board of Directors and that too not once
but twice.
31. There is yet another fact. Most of these companies
keep their processes and
434
technology a guarded secret. More better the technology,
more fervently it is guarded. And HAL 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 Sub-Committee 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-
ity, i.e., full capacity production. Thus, it was not a
case of merely leasing out a Government company but a case
where the Government 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 G.B. 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 Government of India gave the directive on 20th
June, 1994. In the above circumstances and, on the present
material, we cannot say that Sri Basu 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 SPIC is concerned, even when it was putting forward its
proposals, it was in the process of setting up a plant of
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its own for manufacture of Penn-G. 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 (Cipan)
technology. Rejection of its proposals by the Board - and
not by the Managing Director, Sri Basu, as emphasised
hercinbefore - cannot, therefore, be held to be either ’no
consideration’ or mechanical rejection. No malafides are
attributed to the Board. - In the circumstances, the
complaint of not furnishing full information or not giving
inspection of the H.A.L. plant cannot be said to be
motivated or arbitrary. We do not also think it necessary
to refer to the correspondence that passed between SPIC and
Sri A.K.Basu - to which our attention has been drawn by Sri
Raval - for the reason that rejection of proposals of SPIC
was not by Sri Basu but by the Board of Directors. The
board proceedings referred to hereinbefore do establish that
Board was acting in its own independent judgment in these
matters and was not being led away by the opinions of Sri
Basu. So far as P.B.G. 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
Biotica of Slovakia, (P.B.G’s. foreign partner) was found to
be vague. Above all, the Board of Directors of H.A.L. were
satisfied that the technology of Biotica was no superior to
the one being employed by H.A.L. Biotica of Slovakia is also
not one of the world’s seven leading manufacturers of Penn-G
and, therefore, the Board thought that there was no point in
pursuing the proposals of P.B.G. It cannot be said that it
was not a
435
fair decision nor can it be insisted that before rejecting
the proposals of SPIC and P.B.G., the Board 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 Board 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 Torrent, it entered the picture quite
late. Its foreign partner is the very same Biotica of
Slovakia. (It needs to be stressed that each, of the
appellants, as also M.G.B., 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 Torrent, cannot, therefore,
be entertained. Similarly, the argument of Sri K.K.Venugopal
and Sri F.S.Nariman that the terms stipulated by M.G.B.
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,
Ranbaxy, (not an appellant before us) offered in the first
instance to bring in the technology of Hoescht - 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 the Board of Directors of H.A.L. Firstly, once
the appellant’s offers/proposals are found to have been re-
jected rightly, they cannot be heard to complain of the
amount of lease agreed between H.A.L. and M.G.B. Secondly,
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it appears that the Government of India was satisfied with
Sri Basu’s presentation and agreed with him that stipulation
of Rs.31.68 crores’ rental was not feasible. in the cir-
cumstances and that is why it gave the directive to him to
enter into a MoU with M.G.B. "at the earliest" for
establishing the proposed joint venture. The opinion of
Prof Sharma must also have weighed with the Government in
deciding to go in for J.V.C. with M.G.B. participation. It
should be remembered that the Board of Directors of H.A.L.
had also decided to have a technological collaboration with
M.G.B. It would have been a different matter if the Board of
Directors had agreed with the recommendation of the Sub-Com-
mittee that there is tremendous scope of improving and
achieving higher level of efficiency and cost reduction in
the operations of H. A.L. itself with the existing tech-
nology and without obtaining any foreign technology and that
the H.A.L. should first try that course. On the other hand,
the Board decided in its meeting held on April 28, 1994 that
H.A.L. should go in for technological collaboration with
M.G.B. in the form of a J.V.C. Yet another fact is that
negotiations with M.G.B- were held on June 20, 1994 not by
Sri A.K.Basu alone but a Committee of three members of whom
one appears to have been a member of the Sub-Committee as
well.
35. We must reiterate that this was not a simple case of
granting of lease of a Government 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
436
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. H.A.L. 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 Government 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 the Board of Directors
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 Board the lease amount which M.G.B. is prepared to pay,
the Managing Director should have reported back to the Board
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 Board. The
Managing Director was trying to over-reach the Board of
Directors 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 Basu did write to M.G.B. on May 10, 1994 as directed by
the Board but that the M.G.B. did not agree to the figure
stipulated by the Board (vide M.G.B. letter dated May 17,
1994) and that both these letters were placed before the
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Board. Be that as it may, once the Government 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 the Government of India. 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 Union and that Article II 7
of the Articles of Association of H.A.L. is no part of the
executive power of the Union. Accordingly, it is submitted,
the authentication of the said directive by the Deputy
Secretary to the Government of India is equally
incompetent.Now, the directive in this case is issued by
the Government of India. 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
H.A.L. 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. [See Rai Sahib Ram Jawaya Kapur & Ors. v. The
State of Punjab (1995 5 (2) S.C.R.225) and Shamsher Singh
& Anr. v. State of Punjab (1975 (1) S.C.R.814)] H.A.L. is a
Government company. It was
437
really an agency, an instrumentality of Government of India
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 the
Government of India. 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 H.A.L. and
all its authorities. If so, the corporate identity or
corporate existence of H.A.L. 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
H.A.L. and the Government of India, there was no point in
giving notice to SPIC and P.B.G. whose offers were already
rejected by the Board once and again after re-evaluation
directed by the Government.
38. Lastly, it is argued that in the case of Torrent, the
Minister of State had asked the H.A.L. 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 State was revised by the Minister
for Chemicals and Fertilizers even before the issuance of
the directive. Moreover, Torrent 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 Biotica of Slovakia, which was
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already rejected in the case of P.B.G., no useful purpose
would be served even by asking a reconsideration of its
proposals.
39. Before parting with this matter, we must say that MoU
entered into with M.G.B. is subject to the final approval of
the Government of India, as expressly provided in the
directive dated 20th June, 1994. We are sure that the
Government would examine all the terms of MoU carefully
before according its approval. It is obvious that it is
always open to the Government to seek such modification of
the terms of MoU as it thinks appropriate and as are
feasible. But if it approves the MoU 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.
438